October's "stock of the month" is LIC Housing, according to Markets Mojo. Here are six reasons why

 October's "stock of the month" is LIC Housing, according to Markets Mojo. Here are six reasons why

Brokerage firm Markets Mojo chose LIC Housing Finance as its top selection for the month of October after a gain of more than 41% between April and September. On October 3, 2023, the stock's 52-week high of 480.80 was reached. However, it has subsequently stabilized a little and is now down more than 4%.

The broker suggests purchasing the stock at 470. On the strength of rising margins, alluring prices, an improved business matrix, lower lending costs, and a new government subsidy program, it is optimistic on the stock.

In the last year and thus far in 2023, the stock has increased by almost 13 percent. On the other hand, during the course of three years, it has increased by more than 53%.

Investment justification: new program to subsidize house loans For the next five years, the Indian government plans to implement a 60,000 crore strategy to subsidize loans for modest urban homes. According to the brokerage, this might have a big positive impact on LIC Housing as the firm may see an increase in loan disbursements.

"The house price index increased by 7.21 percent in the second quarter of 2023, reflecting the excellent performance of the Indian real estate market between April and June of this year. Property rates increased between 6 and 15 percent in metro areas. With interest rates increasing, there may be an increase in personal borrowing, which would imply more business for the firm because it specializes in personal home loans, according to the brokerage.

Focus on business matrix improvement: According to the brokerage, LIC Housing Finance is working on a number of initiatives to enhance its business matrix. By creating additional offices, it hopes to increase its geographic footprint throughout the nation. The business is using technology to streamline processes and increase the size of its loan growth book. The first two months of the current fiscal year's performance were affected by the new technology's adoption because of business-related technical issues. However, management told the brokerage on a conference call after they released their June quarterly statistics that technology had stabilized. The management is sure that they can now continue to develop at a healthy pace. According to the management, loan book growth might be between 12 and 15 percent in the current fiscal year compared to 9 percent in FY2023, according to the brokerage.

LIC Housing Finance has a greater credit cost, therefore put your attention on lowering it. That is one of the reasons investors did not hold the firm in high regard. The company's project financing has consistently had a negative impact on its finances. To increase its ROA, the new CEO and MD have chosen to concentrate on the credit cost. The management has said that they want to reduce the cost of credit. Another significant plus, according to the brokerage, is that the management has advised that the blended ROA should now be in the range of 1.3 to 1.4 percent, up from the 1.1 percent stated in FY2023.

NIM: The brokerage says that even though LIC Housing Finance's NIM increased to 3.21 percent in the first quarter, it is not sustainable. Its NIM for FY2023, which was 2.41 percent, might increase to 2.6 to 2.7 percent for the current fiscal year, according to the brokerage. Additionally, the business has an A+ rating, which makes it easier to acquire money at a reasonable cost.

Attractive valuations: In India, LIC house is the market leader in house loans. When compared to its competitors, who are asking for greater price to book ratios, the company's Price to Book Ratio of less than 1 is highly favorable. The brokerage said that increasing ROA should enable the business to demand a greater price to book. It firmly thinks that there is plenty of space for capital growth in the next months as a result of strengthening financials, legislative changes, and rising interest in PSU equities. This investment has a modest negative risk and significant upside potential.

Revenue and net profit both increased by 28 and 43 percent, respectively, in the company's most recent two quarters of earnings. The brokerage noted that the company's ROE has improved significantly over the past few quarters, and other metrics such as net interest income—which increased by 39 percent from the previous year—and the individual home loan business—which is their core business—saw improvements as well.