LIC housing finance – One of the best bets on the improving housing market

LIC Housing Finance is one of the largest housing finance company in the country. It is the fourth largest financing company in India after HDFC, SBI, ICICI and it has market share of around 8%. The company was promoted by the erstwhile Life Insurance Corporation and it went public in 1994.

The main objective of the company is providing long term finance to individuals for purchase / construction / repair and renovation of new / existing flats or houses. The company also provides finance on existing property for business / personal needs and gives loans to professionals.

More than 90% of the company’s loans is made up of individual home loans and the rest is financing for home developers. The low exposure to housing developers is one probable reason that the company was able to come out strong from the slump in housing demand. Despite the space providing the company with higher yields, the company will most probably continue to restrict it at somewhere around 10%.

The company has around 158 marketing offices backed by a strong distribution network of around 10,000 agents in the country. These agents are direct selling agents. NCD and term loans are the source of funds for this company. The company has been getting better and better over the years. The NPA has come down from almost 4.7% to just 1.5% in FY 09. Also, all the profitability ratios and efficiency ratios like the OPM, NPM, ROCE are all only getting better with time.

As of Q2 of 2009, the company reported that the loan book was standing at somewhere around 30,000 crore and this is an impressive 30% jump from the previous year. The company true to its conservative nature was not performing that well in the previous housing boom. However, it has come out with extraordinary performance during the slump. One can expect the trend to continue and not revert to old ways.

The company has been facing margin pressures in the recent quarters owing to the fall in Net interest margins. NIM fell by around .21% in a year due to the aggressive pricing done by the company. The company has been offering new loans which offers fixed interest rates for the first 3 years and these kind of loans will also add to the margin pressures. However, the existing loans which will be reset every quarter will provide benefits to the company when the interest rates start rising again.

Arun Gopalan $ Lead – HBJ Capital,
Arun@hbjcapital.com

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