LIC Housing Finance: BUY at Rs. 326

LIC Housing Finance

(CMP Rs. 327 as on 22nd Nov 2007)

BSE 500, BSE MIDCAP, BSE Code: 500253
LIC Housing Finance is a housing finance arm of Life Insurance behemoth LIC. The company operates in home loan, loans for construction, repair and renovation and loan to purchase plot.

Also, the company targets new business opportunities such as reverse mortgage, credit card venture tie up with its parent LIC and most importantly LIC Care Homes to target senior citizens for their second home or retirement home.

Financially LICHF is doing reasonably well with net profit up by 53% y-o-y in Q2 FY08 and 44% y-o-y in H1 FY08. Whereas interest income earned has been rising in each quarter taking it to Rs 512 cr in Q2 FY08 (up 35% y-o-y).


This translates its Q2 FY08 EPS at Rs. 13.7 and estimated FY08 EPS should be in the range of Rs 38 – 42.Considering EPS of Rs 40 for FY08 LICHF stock is trading at PE multiples of 8, which is at significant discount to its competitors such as leader HDFC (more than 30) and Dewan Housing (more than 12). Note that LICHF is 2nd largest housing finance company in India.

Key Drivers:

Ø Second largest player in housing finance
Ø Focused only on Housing segment (secured and least risky segment)
Ø Strong distribution network and presence across country
Ø Housing loan rates are not likely to move up triggering demand
Ø The company plans to raise Rs 400 cr through private placement in Jan 2008, which will be at premium to market price. (short term trigger)
Ø LICHF holds 40% in LIC Mutual Fund
Ø Reverse mortgage segment may act as big growth driver as aged people are more likely to mortgage their properties with PSU Banks and LIC rather than private and foreign banks which are struggling with their image!
Ø LICHF has strong parent like LIC which will help cross-selling for products such as life insurance for home loan borrowers
Ø Proactive steps for recovery of NPAs (Net NPAs down by 30% to 1.3%)
Ø The current RBI guidelines for commercial banks to GO SLOW on housing loans may also help players like LICHF
Ø The loan to purchase vacant land may also act as a boost considering soaring land prices across the country.
Ø The entry of LIC in real estate space will certainly help LICHF in medium term
Ø The combined promoter and Institutional holding is up to 83% in Sep 2007 from 78% in Sep 2006

Ø Government of India's increasing focus on housing for all.



Concerns:


The only concerns are slowdown in housing market (with flat of 2100 sq ft at Nariman-Point selling at Rs 34 cr seams unlikely) and rise in interest rates (with currency appreciating beyond the comfort levels of Govt and inflation well under control are very less likely)

Conclusion:

Considering favorable macroeconomic scenario in housing market, encouraging visibility of sector in near to medium future Housing Finance companies are likely do well. LICHF being the 2nd largest player is in better positioned as it has presence across geographies and demographics. At CMP of Rs 326 stock trades at PE multiple of 8 at its FY08 earnings making it one of most attractive and cheap investment option for the 2-3 year time frame for the target of Rs 400+ by 2007 year end to Jan 2008 end (23% return), Rs 500 + by 2008 year end (53% return in 13 months). The downside form current levels are limited.

BUY LIC Housing Finance at CMP 326. (Medium Risk High Reward)


Housing Development & Infrastructure Ltd (HDIL)

HDIL is Mumbai centric with 112 mn sq ft land bank, next two yr rev in the region of Rs 2000-2500 cr with 40% profit margins, Net asset value = 500-540 Rs

Q1 FY08 results:
Revenues = Rs 4458.40 million
Net Profit = Rs. 2026.90 million
EPS for Q1 = Rs. 11.28
Est EPS for FY08 = approx: 50 Rs
EPS for FY07 Rs 28

Face Value = Rs. 10
Company declared interim dividend of 20%.
The debt-equity ratio pre- IPO is of 0.4.

By March 2008 even we apply P/E of 14 then conservative tgt should be 700 Rs.
Being Mumbai centric the company will not be affected much if at all there is any slowdown in reality market.

DLF EPS Rs. 3.77 for Q1 FY08 and for Unitech EPS stands at Rs. 4.29 For Q1 FY07

New developements

1. Bought land at Ghatkoper 8.5 acres for 125 cr
2. Navi mumbai Eveready deal for 115 cr 15 acres
3. Entered in alliance with Lehman Brothers for Dharavi Project bid (HDIL stands very good chance to clinch the project as they have vast exp of slum rehab projects compare to other bidders..
4.Forms "HDIL Entertainment" planning muliplex chain across the country
5. Rs 20 bn IT Park in Kochi spread across 70 Acres (about 8mn sq ft salable area)....generating approx. 65k jobs
6.GVK set to tie up with HDIL in airport project ::
GVK, the company managing Mumbai International Airport Pvt Ltd (MIAL), is close to finalising Housing Development and Infrastructure Ltd (HDIL) as its partner for the airport slum rehabilitation project.
The project envisages the rehabilitation of 85,000 families on 276 acres, or 1.2 crore sq ft, of land. (Slum Developement is big a plus of HDIL)
7. HDIL plans raising up to Rs 1000 cr via debentures ::
to part-fund recent land acquisitions

HDIL Q2 FY08 results:
Rev up 4.87% to Rs. 4648 mn qoq
Net profit up 13.26% to Rs. 2293 mn qoq
total land bank 120 mn sq ft except mumbai airport project


Conclusion: Good management, dominent presence in slum developement, mumbai centric land bank and cheap valuations vis a vis peers.
BUY with target of 1000+ in next 12-15 months

Update: Since recommendation on 18th Nov at Price of Rs 713, HDIL appreciated to Rs 824 on 29th Nov 2007 giving over 15% returns!

HDIL made a high of Rs 999 on 12th Dec 1007. HDIL hit the target in 24 days resulting in 40% handsome gains...

Book profits at these levels....

Buy CCL Products Ltd

CCL Products Ltd

BSE SMLCAP

CCL products is 100% exporter of Coffee products
Fundamentally sound company with very good dividend payment track record.
PE 7.6 (FY 07)

International scenario and outlook for Coffee is +ve for next 2-3 years from pricing point of view. The company has presence in both US as well as EU mkts.

The stock has witnessed long bear run in last 6-8 months taking it down from 560 levels to the lows of 192 as stock is prominently managed by few large players in the market.

Avg trading volume is in the range of 5-15k. Historically rebound had been quick and sharp.
Recently, Reliance Mutual Fund purchased 9,00,000 shares at 250 rupees.

The International Coffee Organisation (ICO) on Thursday revised upwards its forecast of 2007-08 global coffee production to nearly 114 million 60-kg bags from its previous prediction of 112 million. The ICO also gave a preliminary forecast of world coffee consumption in 2007 of at least 122 million bags, up from 120.3 million in 2006.

All these factors together indicates very good buying opportunity from medium to long term view with target og 350+
At these levels downside is limited i.e. 180 level atmost

So

BUY CCL PRODUCTS for 12-15 months at CMP of Rs. 235 with Target price of 350+.

Medium Risk High Rewards
 
 

Orient Paper & Industries Limited (OPIL)

Orient Paper & Industries Limited (OPIL)

BSE 500 BSE SMLCAP


Orient paper is a CP & GK Birla Group company. Three division: Paper, Cement and Fans & electric equipments.

EPS FY07 Rs 86
H1 FY08 Rs.65
PE multiple is just 5 considering EPS of Rs 130 for FY08

In Sep Qtr EPS jumped by 260% yoy with jump of 50% in sales

Stock split recommended 1:10.

Interim Dividend 50%


Expansion plans:
Around 750 crore with expansion in almost all the division.

Ø It plans to expand its cement manufacturing capacity to 5 million tonnes per annum (mtpa) at its plants in Devapur and Jalgaon from 2.4 mtpa by FY 2007-08

Ø It also decided to enhance the capacity of its proposed captive thermal power plant at Devapur from 30 MW to 50 MW. This will reduce power cost from 3.1 Rs to 1.2 Rs per unit

Ø It is also moving into compact fluorescent lighting (CFL) products and accessories products with an investment of 40 crore and plans to gain 5% market share in the growing industry.

Carbon credit:

Orient Paper would soon begin trading of carbon credits generated by its cement units - one in Andhra Pradesh and the other in Maharashtra.
The carbon emission reduction project of the cement division has received final approval from the United Nations Framework Convention of Climatic Change (UNFCCC) and the company received the first installment of credits for 96,310 units of certified emission reduction (CER). From 2007-08, the cement division is anticipated to generate 80,000 units of CER till 2011-12.

Paper industry:

India Vs world:
Production 7.5mn tonnes vs 325 mn tonnes.
Per capita consumption 7kg vs 40 kg (in Dev nation like US 300kgs)
These figures indicate tremendous potential for paper producers due to growing domestic demand. Industry in India is growing at 10-12% against 3-4% of global avg.

Cement Industry:
India 2nd largest producer behind China (1/8 th of China)
Growth in any sector invariably translate increased demand for Cement. Orient cement is countries one of most profitable plants due to it location advantage.

Conclusion:

Solid financial performance, robust expansion plans across segments and increased liquidity due to stock split deserves strong buy with post split target of Rs 100+ in next 12 months.