Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
LICHF: A shift of focus… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 16, 2005

    LICHF: A shift of focus…

    The mortgage to GDP ratio (ratio of outstanding home loans to GDP) in India has notched a percentage gain and has risen to 3% in FY05 as against 2% in FY04. In Pakistan, it is less than 0.5% and in other countries of South Asia, mortgages as a percentage to GDP are almost insignificant. As against this, this ratio for the US stands at over 51%. Nevertheless, even if one were to benchmark with more comparable counterparts, the ratio ranges between 15%-20% for South East Asian countries. The penetration level of mortgages in the country is miniscule when compared with the shortage of housing units. The point that we are trying to drive here is that there is considerable room for growth for Indian housing finance companies (HFCs). This is notwithstanding the fact that banks are also tapping a major chunk of this 'potential market'.

    LIC Housing Finance is the second largest housing finance company in India with 8% market share. It was promoted in 1989 by LIC (which has 38% stake in the company) and floated its maiden GDR issue in September 2004. Although competition in the mortgage financing sector has been increasing, LICHF has shown strong 24% CAGR in its loan book over the past half a decade. LICHF markets its products largely to retail clients through a network of 113 outlets.

    The HFC has over the last few years exhibited a clear shift of focus from retail to corporate clients. While the share of retail advances has reduced to 93% of total advances as against 96% in FY01, that of corporate advances (corporate and housing societies) has notched up to 7%. Also, while the YoY growth rate in the retail segment remains stagnant at 23%, the corporate segment is catapulting at over 100% over the last 2 years.

    This paradigm shift is primarily because project (corporate) loans are typically for a shorter duration and garner better yields as compared to retail loans. Also, with the mounting pressure on yields and volume constraints due to competitive pressures from banks, LICHF is targeting this new market segment to sustain its topline growth. However, given the declining disbursement to sanction ratio (from 92% in FY01 to 87% in FY05), whether LICHF will be able to fruitfully capitalise on the buoyant hosing finance market is a matter of concern.

    LICHF has also exhibited some proactiveness in containing its operating costs by reducing the reliance on high cost LIC borrowings and obtaining funds from other lower cost sources such as ECBs. The share of borrowings from LIC has reduced from 69% of term loans in FY01 to 42% in FY04. The recent GDR issue was also aimed at improving the capital adequacy ratio without resorting to higher cost Tier II borrowing.

    Despite all the facts stated above, our discomfort lies with the fact that while LICHFs contemporary HDFC has outperformed the industry growth rate of 25% over the last few years, that of LIC is languishing at 22%, with no signs of improvement. Also competition from banks continues to be a threat to the HFC's market share.

    Our view
    At the current price of Rs 250 the stock is trading 11 times its annualised FY05 expected earnings. The company has launched convertible fixed interest products (convertible into floating after 5 years) in the last quarter. In the event of hardening of interest rates in the coming quarters, (which is quite likely) the company will stand to lose out on better margins on these products. Also, competition from HDFC and banking entities continues to pose threat to the company's market share despite there being considerable growth opportunities in the sector. Although the company is undervalued as compared to its competitor HDFC, inability to boost its topline and sustain its market share in the coming quarters may further dampen its valuations.



    Equitymaster requests your view! Post a comment on "LICHF: A shift of focus…". Click here!


    More Views on News

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Central Depository Services (India) Ltd. (IPO)

    Jun 19, 2017

    Should one subscribe to the IPO of CDSL Ltd?

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms