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The company has been at the forefront of generating gains in its segment

LIC Housing Finance (LICHF) is the fourth-largest housing finance company in India. But based on incremental disbursements comes to be ranked second among all the housing finance companies. Last five years have been the golden time for the housing loan business. During this period housing loan business has grown at the rate of 31 per cent. While LICHF in the same period has  been able to increase its loan book at a compounded annual growth rate (CAGR) of 23 per cent.

LICHF has diversified into fields like Care Homes Ltd, which runs assisted living community centres for senior citizens; Financial Services Ltd, which is into marketing financial products and services; Asset Management Company Pvt Ltd; and Trustee Company Pvt Ltd, dealing with venture capital trusts/funds.

Fundamental Performance
During boom time (5 years), the company has been able to increase its bottom-line at the rate of 30 per cent per annum, but not at the cost of quality — during the same period the gross non-performing assets (NPAs) reduced from 4.4 per cent in FY04 to 1.07 per cent in FY09. 91 per cent of the current loan book pertains to retail customers with only 9 per cent exposed to large ticket customers i.e. developers.

Stock Performance
Recently, LICHF raised around Rs 675 crore to keep up with its target 30 per cent expansion of the loan book in FY10. Though this has dampened its RoE somewhat, in the long run it augurs well. In the last 5 years the stock has rewarded its investors handsomely with 34 per cent annualized returns. But investors have to bear in mind that the stock’s recent (March 9, to September 15, 2009) rise of 257.4 per cent is due to internal restructuring. It is currently trading at 68 per cent above its 5-year median PE with a dividend yield of 1.93 per cent. Compared with HDFC, LICHF is trading at a steep discount, but at a premium to other financing companies such as GIC Housing Finance and Dewan Housing Finance.

LICHF was set up in 1989 to channel money into the housing sector  by the Life Insurance Corporation of India (LIC). In 1994 the company was listed to raise funds for expanding its loan portfolio. Currently, LIC holds 40.84 per cent stake in it.

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This article was previously published in October 2009 issue of Wealth Insight