On Wednesday, BofA Securities modified its stance on LIC Housing Finance (LICHF:IN), upgrading the stock from Underperform to Neutral and increasing the price target to INR695.00 from INR625.00. This adjustment follows a period of underperformance by LIC Housing Finance compared to its peers in the housing finance sector.
The analyst from BofA Securities noted that after a stock price correction, LIC Housing Finance is now trading at a forward price-to-book value (P/BV) of 0.84x for the fiscal year 2026, which represents a 39% discount to its historical valuations. The upgrade is based on several factors, including a growth revival in the company's gross loan book, which has shown a year-over-year increase of 6% in the second quarter.
LIC Housing Finance's growth has been supported by a pickup in individual housing, a revival in project finance loans, which saw an 11% quarter-over-quarter increase, and the expected ramp-up in the company's newly launched affordable housing loans targeted at self-employed customers.
Additionally, the analyst anticipates benign credit costs and potential recoveries in the second half of the year, citing that LIC Housing Finance has 3-4 large accounts in advanced stages of resolution that could lead to positive earnings surprises in the coming quarters.
The report also highlighted the potential for growth revival in higher-yielding segments such as wholesale and affordable housing, which could support net interest margins (NIMs).
Despite the low book provisioning, with Total Expected Credit Loss (ECL) at 1.85% versus the historical average of 2.2%-2.5%, and a high Provision Coverage Ratio (PCR) of 70%, BofA Securities is looking for more clarity on the trajectory of credit costs before adopting a more constructive outlook.
The revised price target of INR695 reflects the analyst's updated valuation of LIC Housing Finance, considering the aforementioned factors that could influence the company's performance in the near term.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on LIC Housing Finance's financial position and market performance. The company's market capitalization stands at a modest 0.78 million USD, reflecting its current valuation in the market. Despite the recent upgrade by BofA Securities, InvestingPro data reveals that LIC Housing Finance has experienced significant price declines across various timeframes. Notably, the stock has seen a 56.7% drop in the past month and a 42.47% decline over the last three months, aligning with the analyst's observation of the stock's underperformance relative to peers.
InvestingPro Tips highlight some intriguing aspects of LIC Housing Finance's financial health. The company is trading at a low P/E ratio relative to its near-term earnings growth, which could indicate potential undervaluation - a factor that may have influenced BofA's decision to upgrade the stock. Additionally, LIC Housing Finance is noted as a prominent player in the Financial Services industry, reinforcing its significance in the sector despite recent challenges.
It's worth noting that InvestingPro offers 10 additional tips for LIC Housing Finance, providing investors with a more comprehensive analysis of the company's prospects. These insights could be particularly valuable given the mixed signals in the market and the recent analyst upgrade.
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