We retain our neutral rating on LIC Housing Finance (LICHF) and target price of R310 per share. LICHF is trading at 1.7x P/AB 12-month forward versus its three-year average of 1.7x P/AB.
We now value the stock at 1.6x P/AB versus 1.5x P/AB before based on a single-stage Gordon growth model (July 2016 base), given that the growth outlook has improved marginally, leading to slightly better weighted RoE of 19% (versus 18.1%).
We cut our estimates by 9% and 8% for FY15e and FY16e, as we increase our tax rate to factor in the DTL impact, though retail and LAP segments will continue to grow well, which augers well for overall loan growth.
After three quarters of single-digit growth, retail disbursement growth picked up, growing 17% y-o-y, leading to retail as well as overall loan book growth of 17% y-o-y. Wholesale loan book continued to shrink, in line with our expectations and the wholesale share in loan mix declined further to just 2.7%. Loans against property (LAP) continued to grow well at c31% y-o-y, with its proportion in the loan mix increasing to c4%.
The management has reiterated its intention to improve its mix to 5% by year-end, implying continuing higher disbursements in LAP. Spreads contracted 6 bps y-o-y to 1.15% due to higher reliance on bank funding.