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Deeptha Rajkumar

SHARES of LIC Housing Finance on Thursday hit an all-time high of Rs 168.80 on the BSE on sustained buying support.

The stock which has gained about 28 per cent in the last two trading sessions i.e. from Rs 132 to the all-time high, slipped to end the day at 147.35, up 4.17 on the BSE with around 11.2 lakh shares traded. On the NSE, the stock ended the day at Rs 149, up 5.49 per cent with around 21.4 lakh shares traded.

Word on the street is that, despite company denials, speculation about it merging with Corporation Bank is once again aiding momentum in the counter.

``The price movement would seem to indicate that there is some development in the offing. Whether it is a merger or the company picking up a stake in the bank, is a debatable issue. Yet the synergies are right. And looked at as a whole - i.e. LIC, LICHF Corporation Bank

- have a lot to offer today's global customer. That apart, LIC is one institution that has so far remained untainted from any scam as such,'' reasoned an industry source.

It may be recalled that there is a strategic tie-up between LIC and Corporation Bank with the former holding a 26 per cent stake in the Bank.

However, Mr Rajiv Thakkar, head of research, Parag Parikh Financial Advisory Services rules out the possibility of a merger between the two entities.

``Corporation Bank would have to provide for reserves on existing borrowings of LICHF. Hence, a merger at this juncture is unlikely. The current upside can be purely fundamental play. Its quarter one numbers are expected shortly and there is talk that disbursements are up 93 per cent on the previous year. Which, if true, is a phenomenal growth,'' he said.

According to him, there is no denying that a bank with a large network, a good retail presence and a large proportion of savings bank and current accounts will have a cost of funds (based on interest cost alone) which is significantly lower than LICHF.

``However, this advantage is not without cost. The administrative expenses in the case of banks add around 2.25-2.5 per cent, to the total cost of the banks. This, in the case of LICHF, is 0.9 per cent. This is one-time technology relating expenditure. Further, LICHF does not have problems of reserve requirements, priority sector lending etc which encumber a typical public sector bank,'' he reasoned.

On fundamentals, other sector analysts are of the view that given that a large amount of loans taken by LIC Housing, from banks and LIC, have been repriced during the year. The full effect of this repricing has not been reflected in the current year's financials. Taking this factor into account, they expect margins to be maintained for the year 2003-04.

Investment rationale apart, there are rumours that co-promoters - IFCI and UTI may be looking for an exit. Hence there is the possibility of a new player, which may be additionally fuelling interest in the counter.

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