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| LIC Housing Finance: Nicely timed QIP |
| Shobhana Subramanian / Mumbai Sep 23, 2009, 00:02 IST |
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Loan growth would have suffered had the company not mopped up the money.
 The Rs 658 crore that LIC Housing Finance has picked up should come in handy for its loan disbursements this year, and it doesn’t matter that the equity base will be diluted by about 12 per cent.
The company recently raised 10 million shares, at a price of Rs 658 per share, through a qualified institutional placement (QIP). The home loan firm plans to grow its loan book by about 40 per cent in the current year, a target that appears to be somewhat ambitious even though the economy is now clearly on the mend.
However, Chief Executive R R Nair says, loan disbursements are growing at 70 per cent year-on-year currently and is fairly confident that the target should be achieved as demand is strong. Analysts are looking at a slightly more conservative loan growth of about 28-30 per cent .
However, real estate developers are reporting good demand for smaller homes and LIC Housing’s average loan size, Nair points out, is Rs 13 lakh plus. Under the circumstances, it’s just as well that LIC Housing mopped up the money because it might have lost out on lending opportunities; analysts believe the cash flows generated by it internally may not have been sufficient to fund the loans.
They point out that since the money should be put to use fairly, quickly and not lie around, the return on equity(RoE) should not be depressed for too long, even if it slips somewhat for a couple of quarters. Also, since interest rates are unlikely to fall from these levels, the net interest margin (NIM) should improve gradually.
In the June 2009 quarter, the NIM was hurt as the cost of funds was relatively high when compared with the lending rates, which have been coming off in a decreasing interest rate environment. In the current year, the company is expected to post a net profit of around Rs 625 crore, over the Rs 530 crore reported in 2008-09. The stock has seen a very sharp run up gaining 16 per cent in the past week and at the current price of Rs 817, the stock trades at a somewhat expensive 2 times estimated book value for 2010-11.
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