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LIC Housing + Lanco Coverage by ICICI Sec

November 23, 2007

ICICI Securities, has not initiated coverage on LIC Housing Finance [We had in July] and Lanco Infratech. Here is a Detailed Review about the same.

LIC Housing Finance:
RBI’s directive to commercial banks to reduce focus on housing finance will benefit focussed players like LICHF. Expect a 28% CAGR in bottom line to Rs 455 crore over FY07-09E. Its significant exposure to retail book will help in registering healthy yields.

LICHF’s net profit grew 33% to Rs 279.1 crore in FY07 from Rs 208.5 crore in FY06. Its ROA is expected to improve to 1.8% in FY08E from 1.4% in FY06. Assuming a ROE of 18%-19%, even after factoring in the equity dilution, I-Sec arrives at a fair value of Rs 402 per share, 1.6x its FY09E ABV. LICHF also has a 39.3% stake in LIC MF AMC. As on Oct 31, 2007, the AMC’s AUM amounted to Rs 16,245 crores. This translates into Rs 46 per share of LICHF. Adding all these gives a target price of Rs 448, an upside of 20% over a 12-15 month period.

Lanco Infratech:
ICICI has revised the earnings expectations of Lanco Infratech and hence also raising the price target of the stock. Upgrading FY08E, FY09E & FY10E revenue estimates 3%, 13% and 19% respectively – similarly, profit estimates have been raised 7%, 17% and 28% respectively. Lanco is trading at FY08E, FY09E & FY10E P/E of 22.6x, 10.4x and 6.6x with EPS estimates of Rs19.7, Rs42.8 and Rs67.3 respectively.

Sum of the pars Valuation of Lanco Infratech:
Lanco Real Estate – Rs 176
Construction – Rs 153
Power – Rs 139
New Power Projects – Rs 107
Carbon Credits – Rs 19

Hence I-Sec recommends a BUY with a Target Price of Rs 594.

DalalStreet Analyst Note
We are recommending adding GIC Housing Finance in small quantities at Price of Rs 63. Dividend Yield works out to 3.5%. Potential LIC Housing Finance story on GIC Housing Finance stock.

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