29th Nov, 2010.

LIC Housing Finance Ltd

Key Data `
CMP (`) 932
The Central Bureau of Investigation has arrested officials of LIC housing Finance
Target Price (`) 1056 (LICHF) on charges of corruption pertaining to certain developer loans. According
Bloomberg Code LICHF IN to the report these officials accepted bribes to provide builder with loans.
Reuters Code LICH.BO
BSE Code 500253 Clarification issued by the company
NSE Code LICHSGFIN
Face Value (`) 10
The company has clarified on the issue to the exchanges indicating that all the loans
Market Cap (` Bn) 89 have been approved in compliance with relevant regulatory norms. Additionally, all
52 Week High (`)) 1497
the loans in question are performing assets and are secured by underlying assets to
52 Week Low (`) 707
the full satisfaction of the approving authority. Developer loans form close to
Avg. Daily Volume (6m) 1529542
F&O 11.3% of the outstanding loan book with Gross NPA of 0.08%, while the Gross
Market Lot 250 NPA in the individual portfolio stood at 0.84%. LICHF has provision coverage of
Turnover (` Mn) 10983
71.8% on its non-performing assets.

Shareholding % Revision in estimates

Promoters 36.5
Mutual Funds / Bank/ FI 5.6 We believe that such an event is likely to have a near term negative impact as the
Insurance Companies 3.7 company may adopt a cautious approach while disbursing towards the project
Foreign Institutional Investors 41.7
Others 12.6
loans. We have therefore lowered our disbursement estimates. We have revised our
Total 100.0 disbursement growth CAGR from 30% for FY10-12 earlier to 23%. With slower
growth in the high yielding project loan, this will have an impact on our margins.
These revisions have resulted in downward revision in our EPS estimates by 3% to
`101.9 in FY11 and 8% to `112.2 in FY12.
FY11E FY12E
Revision in estimates Original Revised % Chng Original Revised % Chng
Net Interest Income 12321.8 11941.9 -3.1% 16156.8 14830.5 -8.2%
Net Profits 9948.6 9677.3 -2.7% 11619.0 10658.0 -8.3%
Cost of Borrowings 8.2% 8.2% 0.1% 8.4% 8.4% 0.1%
Yield on Advances 10.3% 10.2% 0.0% 10.5% 10.4% -0.1%
Net interest margins 2.8% 2.7% -0.1% 2.8% 2.7% -0.1%
EPS 104.7 101.9 -2.7% 122.3 112.2 -8.3%
Adjusted Book Value 438.2 435.4 -0.6% 540.8 527.9 -2.4%

Considering the developments we assign higher risk weightage to the stock and
therefore lower our valuation multiple i.e our price to book value multiple from 3x
to 2x. We continue to monitor the situation (management changes, outcome of the
investigation), however considering the recent correction in the stock price, we
maintain our “ACCMULATE” recommendation on the stock for a target of `1056
Analyst (2.0x P/ABV of `527.9 of FY12).
Deepti Chauhan
research@acm.co.in
Tel: +91-22 2858 3408

LIC Housing Finance Ltd. – Event Update ACMIIL 1

Earnings Summary ` Mn
Particulars FY09 FY10 FY11E FY12E
Interest Income 27476.5 32826.7 44731.3 57376.3
Interest expended 20,166.1 23,957.3 32,789.4 42,545.8
Net Interest Income 7,310.4 8,869.4 11,941.9 14,830.5
Growth % 32.0 21.3 34.6 24.2
Other Income 1557.0 1870.6 2481.5 3044.3
Operating Income 8,867.3 10,740.0 14,423.4 17,874.9
Operating Expenses 1,542.4 1,910.8 2,287.7 2,821.5
Pre Provisioning Profits 7,324.9 8,829.2 12,135.7 15,053.3
Provisions & contingencies 52.5 -283.4 429.4 393.0
Profit before Taxes and Prior period items 7,272.3 9,112.7 11,706.3 14,660.3
Prior period items -8.1 0.0 0.0 0.0
Profit before Taxes 7,264.2 9,112.7 11,706.3 14,660.3
Provisions for taxes 1,948.0 2,490.9 3,195.8 4,002.3
Net Profits 5,316.2 6,621.8 8,510.5 10,658.0
Growth % 37.3 24.6 28.5 25.2
Extraordinary item 0.0 0.0 1,166.8 0.0
Net Profits 5,316.2 6,621.8 9,677.3 10,658.0
Growth % 37.3 24.6 46.1 10.1

Source: Company, ACMIIL research

Sources and Application of Funds ` Mn

Particulars FY09 FY10 FY11E FY12E
Liabilities
Capital 850.0 950.0 950.0 950.0
Reserves & Surplus 21,491.0 32,926.8 40,770.1 49,372.0
Networth 22,341.0 33,876.7 41,720.1 50,321.9
Borrowings 254,216.6 347,581.6 450,574.3 557,476.7
Total 276,557.5 381,458.3 492,294.4 607,798.7
Assets
Fixed assets 345.2 356.2 413.0 479.6
Investments 11,291.5 13,887.0 13,887.0 13,887.0
Loans 276,792.8 380,813.8 492,430.9 607,604.1
Net current Assets -12,819.5 -14,489.3 -15,327.1 -15,062.5
Deferred Tax asset 947.5 890.5 890.5 890.5
Total 276,557.5 381,458.3 492,294.4 607,798.7
Source: Company, ACMIIL research

LIC Housing Finance Ltd. – Event Update ACMIIL 2

Key Ratios FY09 FY10 FY11E FY12E
Spreads
Cost of Borrowings 8.8% 8.0% 8.2% 8.4%
Yield on Advances 11.1% 10.0% 10.2% 10.4%
Net Interest Income 2.3% 2.0% 2.0% 2.0%
Net interest margins 2.9% 2.7% 2.7% 2.7%
Profitability ratios
Return On Average Assets (ROAA) 1.9% 1.7% 2.0% 1.8%
Return On Average Net worth (ROANW) 23.8% 19.5% 20.4% 21.2%
Balance sheet ratios
Loan to borrowings ratio (%) 108.9 109.6 109.3 109.0
Debt/Equity Ratio (Times) 11.4 10.3 10.8 11.1
Growth Ratios
Borrowings 25.0% 36.7% 29.6% 23.7%
Loans 26.2% 37.6% 29.3% 23.4%
NII Growth 30.2% 22.8% 34.3% 23.9%
Book value 23.6% 37.3% 23.8% 21.3%
EPS 37.3% 11.4% 46.1% 10.1%
Valuation ratios
EPS (`.) 62.5 69.7 101.9 112.2
Book value (`.) 256.1 351.7 435.4 527.9
P/E (X) 14.9 13.4 9.1 8.3
P/BV (X) 3.6 2.6 2.1 1.8
Source: Company, ACMIIL research

LIC Housing Finance Ltd. – Event Update ACMIIL 3

 Notes

Institutional Sales:
Ravindra Nath, Tel: +91 22 2858 3400
Kirti Bagri, Tel: +91 22 2858 3731
Himanshu Varia, Tel: +91 22 2858 3732
Email: instsales@acm.co.in

Institutional Dealing:
Email: instdealing@acm.co.in

Disclaimer:
This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for
circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any
security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as
such. We may from time to time have positions in and buy and sell securities referred to herein.

SEBI Regn No: BSE INB 010607233 (Cash); INF 010607233 (F&O), NSE INB 230607239 (Cash); INF 230607239 (F&O)

LIC Housing Finance Ltd. – Event Update ACMIIL 4