LIC Housing Finance – Long Term Buy

LIC Housing Finance (LICHFL) is one of the largest housing finance companies in India. It possesses one of the industry’s most extensive marketing networks in India and Dubai with thousands of direct sales agents.

LICHFL reported robust income from operations, with disbursals growing 23% and net interest margin (NIM) sustaining at 2.45% in the March 2007 quarter over the March 2006 quarter. The company more than doubled (up 115%) the profit after tax (PAT) to Rs 89.14 crore, supported mainly by the strong NII growth and net performing asset (NPA) recoveries, surpassing market expectation. It sanctioned Rs 2479 crore and disbursed Rs 1755 crore — a growth of 72% and 23%, respectively, in the quarter.

LICHFL sanctioned Rs 6105 crore and disbursed Rs 5121 crore in the year ended March 2007 — a growth of 19% & 5%, respectively, over FY 2006. The company’s total income increased 25%, Rs 1583.25 crore. Net profit was up 34% to Rs 279.14 crore in the year.

The gross NPA ratio stood at 2.58% end March 2007 as against 3.41% end March 2006. Net NPAs were 1.26% as against 1.80%. The company has declared a total dividend of 80% (including 50% interim dividend already paid). The outstanding mortgage portfolio was Rs 17563 crore end March 2007 as against Rs 14867 crore end March 2006 — a growth of 18%.

LICHFL has taken a number of growth initiatives. The company recently launched a fixed deposit scheme to raise resources from individual depositors. It has increased its corporate tie-ups with reputed organisations in the country for granting loans to their employees. The total business coming out of such tie-ups accounted for around 33% of the total retail business in FY 2007 — up from 25% in FY 2006.

LICHFL identified certain areas of priority in FY 2007. It has delivered on it to a considerable extent. The company has been able to reduce both the gross and net NPAs significantly. It had undertaken lots of efforts on marketing, resulting in encouraging sanction and disbursement numbers in the March 2007 quarter (Q4).

LICHFL has targeted loan disbursals of Rs 6000 crore in FY 2008 — a growth of 17%, compared with a growth of just 5% in FY 2007. In view of the strong performance achieved in the March 2007 quarter and the management’s confidence and marketing initiatives already taken, such ramp-up in disbursals is achievable. However, on a conservative basis, the company si expected to report EPS of Rs 36.1 in FY 2008.

LIC holds a 40.5% equity stake in the company. There are good chances of LIC exiting from the business in the long run as housing finance is not its core business, nor does it offer any significant synergy. Moreover, in the hands of any other focused and aggressive player, the company can grow much faster. There is also lots of interest in the housing finance business in India due to the enticing growth potential.

Considering this, the current price of Rs 200, which is near the FY 2007 book value of Rs 180 and gives FY 2008 forward P/E of just 5.5 and dividend yield of 4.4%, offers great value. BUY this stock for Long Term.

India Quarterly Results Expectations + Sectoral Performance

Most Indian companies will report their earnings for the first quarter ended June-30th in the next few weeks. This is also the quarter where corporate India will measure the impact of rate hikes in the past few months.

According to Citi research, the top 3 sectors to outperform on basis EBITDA margins are Media, Cement and Telecom. The worst 3 sectors are Sugar, Metals and Textiles.

Autos:
One of the worst hit sectors from top-line deceleration due to base effect, higher interest rates and tighter liquidity. Despite INR appreciation, auto ancillary
exporters expected to do well due to exposure to non-USD markets like Europe.

Banks:
Loan growth slowed, but should still be healthy for the quarter at around 27%

Capital Goods:
Continued strong order flow and order execution momentum to keep earnings growth robust here.

Cement:
Despite government intervention in pricing, average prices should still be up 10-11% yoy, driving better margins and strong profits.

Consumer:
Steady top-line growth. Margin pressure in home and personal care segment.

IT Services:
Currency appreciation of 6.4% during the quarter and wage hikes for many companies will weigh on margins.

Metals:
Aluminum saw lower domestic prices yoy due to currency appreciation. Steel Profitability better this quarter due to 10-11% higher prices.

Telecom:
Strong momentum on subscriber addition sustained at 6.1m/month. Margins will expand a bit further on scale economies and operating leverage. Another sector with significant foreign exchange gain on INR appreciation due to forex debt with companies.

IPCL Net Profit Declines

Net profit of Indian Petrochemicals Corporation declined 92.77% to Rs 18.00 crore in the quarter ended March 2007 as against Rs 249.00 crore during the previous quarter ended March 2006. Sales rose 30.85% to Rs 3007.00 crore in the quarter ended March 2007 as against Rs 2298.00 crore during the previous quarter ended March 2006.

For the full year, net profit declined 11.34% to Rs 1032.00 crore in the year ended March 2007 as against Rs 1164.00 crore during the previous year ended March 2006. Sales rose 11.05% to Rs 12129.00 crore in the year ended March 2007 as against Rs 10922.00 crore during the previous year ended March 2006. IPCL is managed by RIL Chairman Mukesh Ambani.

Trent + Kalyani Forge

Net profit of Trent rose 1.72% to Rs 7.10 crore in the quarter ended March 2007 as against Rs 6.98 crore during the previous quarter ended March 2006. Sales rose 19.79% to Rs 108.57 crore in the quarter ended March 2007 as against Rs 90.63 crore during the previous quarter ended March 2006.

For the full year, net profit rose 32.94% to Rs 32.41 crore in the year ended March 2007 as against Rs 24.38 crore during the previous year ended March 2006. Sales rose 31.56% to Rs 455.78 crore in the year ended March 2007 as against Rs 346.44 crore during the previous ear ended March 2006. Does this mean the slowing down of Retail Sales in India ?

Net profit of Kalyani Forge rose 101.10% to Rs 3.66 crore in the quarter ended March 2007 as against Rs 1.82 crore during the previous quarter ended March 2006. Sales rose 40.48% to Rs 51.05 crore in the quarter ended March 2007 as against Rs 36.34 crore during the previous quarter ended March 2006.

For the full year, net profit rose 6.87% to Rs 11.05 crore in the year ended March 2007 as against Rs 10.34 crore during the previous year ended March 2006. Sales rose 23.40% to Rs 182.72 crore in the year ended March 2007 as against Rs 148.07 crore during the previous year ended March 2006.

Reliance Equity Advantage Fund – Avoid

Retail Value Investors should avoid the NFO of Reliance Equity Advantage Fund. In quest to become the number one fund house in India and encashing on the the ignorance of Indian retail investors, Reliance Mutual Fund is launching a fund every month which is totally unnecessary.

Reliance Equity Advantage Fund is a Index Fund which will invest 80% in Nifty stocks and the balance 20% in other equities which the fund manager deems fit. Avoid the NFO.

Retail value investors should stick to value investing by means of Systematic Investment Plan.