LICHF’s NIMs have both tailwinds and headwinds. We believe the reset of the teaser portfolio, moderate improvement in developer book, and reduction in leverage will aid margins going into FY13. However, any reduction in cost of funds is likely to be capped given increasing competition in the home loan market, partial reset of cheaper parent loans, and 60bp differential between marginal and weighted average cost of funds.
LICHF recently infused Rs8.1B from the parent at Rs270/share and has additional approval to raise equity (46MM shares) from the market. This should be positive as it will raise the T1 from 8.6% in the last quarter to about 12% (pro forma)
Loan growth going into FY13 will remain robust, in our view, as property markets (ex Mumbai) are likely to remain in good shape, and more so at the affordable end. Valuations at 2x P/BV for a 20%+ ROE business and 25%+ loan growth leaves room for upside, in our view. Upgrade to OVERWEIGHT with a new Mar-13 PT of Rs320
