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LIC Housing Finance Ltd Research Report - 22nd Jul 2016

Banking | Published on Jul 22nd 2016

IT

For 1QFY2017, LIC Housing Finance (LICHF)’s reported PAT growth remained muted while the performance at the operating level continued to be decent. Although higher provisions due to ageing of some NPAs dented the bottom-line for the quarter, we remain convinced about the company’s ability to contain asset quality pressures and its potential to push growth going ahead. Individual home loans continued to report decent growth: The company’s loan book grew by 15.4%. LAP grew by 123% yoy, developer loans were up 39% yoy, while core retail loans grew by 9.3% yoy. Share of LAP+ developer loans in the books increased to 12.2% vs 11.5% QoQ vs 7.3% YoY. While the company has been aggressive and been able to post significant growth in these two segments in the last few quarters, we believe there is further scope for growth if industry trends are taken as an indication. LICHF intends to focus on the core retail loans portfolio going ahead with the non-retail loans portfolio correspondingly continuing to be the growth lever. NIM likely to have a positive bias: For 1QFY2017, the incremental yield and incremental costs stood at 10.68% and 8.70% vs 10.80% and 8.96% respectively in the corresponding quarter a year ago. Incremental spread for the quarter stood at 1.98% vs 1.74% in 1QFY2016 and hence the NIM improved by 20bp yoy to 2.61%. However, the NIM declined on a qoq basis by 10bp. We expect the NIM to remain steady going ahead with a positive bias, drawing support from the increasing exposure to high yielding LAP and developer loans. Asset quality weakened marginally on a qoq basis but not a cause of worry: In absolute terms, GNPAs rose by 15% yoy and 34% qoq to Rs757cr. The GNPA% increased to 0.59% vs 0.46% in 4QFY2016, while it remained flat yoy. The ageing of two NPA accounts from the developer loans segment resulted in incremental provisions to the tune of Rs92cr; hence, the overall provisions jumped to Rs116.5cr vs Rs44.3cr in 1QFY2016. As a result, the PAT growth for the quarter was contained at 6.7% yoy to Rs407.8cr. Further, although provisions have risen during the quarter, we expect them to normalize in the quarters to come. Outlook and valuation: There are early signs of improvement in retail housing in some pockets, thus leading us to believe that the growth will pick up momentum going ahead. We expect the company to post a healthy loan book CAGR of 17.5% over FY2016-18E, which is likely to translate into an earnings CAGR of 18.0% over the same period. The stock currently trades at 2.1x its FY2018E ABV. We maintain our Buy rating on the stock with a revised target price of Rs582.

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CMP 503
Target Price 582
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)27,944.99
MCAP NSE (Rs in Cr)27,922.28
P/E (x)15.79
EPS (Rs.)35.06
BV (Rs.)199.12
Div Yield (%)0.99
FV (Rs.)2.00
P/BV (x)2.78
EV/Sales (x)10.75
EV/EBITDA (x)11.31

Shareholding Pattern (%)

Promoter40.0
Public & Others30.0
Foreign25.0
Institution5.0
Corporate0.0
Grand Total100.0

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