3QFY2017 Result Update | HFC
January 17, 2017
LIC Housing Finance
BUY
CMP
`532
Performance Highlights
Target Price
`630
Particulars (` cr)
3QFY17 2QFY17
% chg (qoq) 3QFY16
% chg (yoy)
Investment Period
12 months
NII
915
866
5.7
747
22.6
Pre-prov. profit
811
791
2.5
680
19.2
Stock Info
PAT
499
495
0.9
419
19.2
Sector
Housing Finance
Source: Company, Angel Research
Market Cap (` cr)
27,266
LICHF came out with a positive set of results for 3QFY2017 with the PAT growing
Beta
1.5
by 19.2% yoy. While we were expecting moderation in business growth, due to
52 Week High / Low
624/389
demonetization, better result was possible backed by growth in non-retail segment.
Avg. Daily Volume
213,118
Sluggish growth in retail; non-retail portfolio gained momentum: LICHF’s total
Face Value (`)
2
loan book grew by 15.3% yoy, during 3QFY2017. While LAP grew by 87.7% yoy
BSE Sensex
27,236
(up 99% in 2QFY2017); developer loans picked up further momentum, up 45.2%
yoy v/s 22.4% in 2QFY2017. However, the core retail loans continued to be
Nifty
8,398
sluggish like the previous quarter and grew by only 9.2% yoy. The share of LAP+
Reuters Code
LICH.BO
developer loans in the books continued to increase and stood at 13.7% v/s 12.5%
Bloomberg Code
[email protected]
qoq. LICHF’s noncore portfolio has been growing fast, however as percentage to total
portfolio, it still remains lower than other HFCs and is not a cause of concern.
Favorable cost of funds helped NIM improvement, marginal pressure expected
Shareholding Pattern (%)
going ahead: During the quarter, the incremental yield on assets increased to
Promoters
40.3
10.69% up 11 bps qoq, partly backed by high yielding LAP portfolio, while the
MF / Banks / Indian Fls
21.1
incremental costs stood at 8.19% down 21 bps qoq. As a result, on a qoq basis,
FII / NRIs / OCBs
24.7
incremental spread improved by 32 bps to 2.50% and NIM improved by 7 bps to
Indian Public / Others
13.9
2.75%. With sharp rate cuts by banks there will be competition in the industry and
LICHF also will have to face the same, however, we feel volume growth should
pick up in the medium term, compensating the same in the quarters to come.
Abs.(%)
3m 1yr 3yr
Asset quality remained resilient: While there was initially fear of deterioration in
Sensex
(0.7)
11.8
29.8
asset quality, post demonetization, the collection levels were not as bad as it was
perceived, which is visible from stable GNPAs of 0.56% and NNPAs 0.27%.
LICHF
(7.7)
15.7
156.0
Contrary to expectations, the asset quality has seen fairly large stability in the last
few quarters and we don’t expect sharp deterioration in the medium term.
3-Year Daily Price Chart
Outlook and valuation: The core retail portfolio continues to be sluggish growing
700
by less than 10%, however, other segments like LAP & Developer loans have been
600
driving the growth for LICHF. With lower interest rates and interest subvention
500
schemes by the Government, we expect growth for housing to rebound in the
400
coming quarters, which should help the company in posting loan book CAGR of
300
19% over FY2016-18E, translating into earnings CAGR of 18.0% over the same
200
period. The stock currently trades at 2.2x its FY2018E ABV. We maintain our BUY
100
rating on the stock with a Target Price of `630.
0
Key financials (standalone)
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
NII
2,349
2,944
3,542
4,116
Source: Company, Angel Research
% chg
16.4
25.3
20.3
16.2
Net profit
1,386
1,661
1,968
2,323
% chg
5.2
19.8
18.5
18.0
NIM (%)
2.3
2.6
2.6
2.5
EPS (`)
27.5
32.9
39.0
46.0
P/E (x)
19.4
16.2
13.7
11.6
P/ABV (x)
3.5
3.0
2.6
2.2
Siddharth Purohit
RoA (%)
1.4
1.4
1.4
1.4
022 - 3935 7800 Ext: 6872
RoE (%)
18.1
19.6
19.9
20.1
[email protected]
Source: Company, Angel Research; Note: CMP as of January 17, 2016
Please refer to important disclosures at the end of this report
1
LIC Housing Finance | 3QFY2017 Result Update
Exhibit 1: 3QFY2017 performance (standalone)
Particulars (` cr)
3QFY17
2QFY17
% chg (qoq) 3QFY16
% chg (yoy) FY2016
FY2015
% chg
Interest earned
3,513
3,428
2.5
3,102
13.2
12,396
10,669
16
Interest expenses
2,597
2,563
1.3
2,355
10.3
9,307
8,310
12.0
Net interest income
915
866
5.7
747
22.6
3,089
2,359
31.0
Non-interest income
36
62
(41.3)
55
(34.1)
89
129
(30.9)
Operating income
952
927
2.6
802
18.7
3,179
2,488
27.7
Operating expenses
141
136
3.2
121
15.9
469
379
23.6
Pre-prov. profit
811
791
2.5
680
19.2
2,710
2,109
28.5
Provisions & cont.
45
30
49.4
34
31.5
146
7
1,920.0
PBT
766
761
0.7
646
18.5
2,564
2,102
22.0
Prov. for taxes
266
266
0.2
227
17.3
903
716
26.1
PAT
499
495
0.9
419
19.2
1,661
1,386
19.8
EPS (`)
9.9
9.8
0.9
8.3
32.9
27.5
19.8
Cost-to-income ratio (%)
14.8
14.7
15.1
14.7
15.2
Effective tax rate (%)
34.8
35.0
35.2
35.2
34.1
Net NPA (%)
0.27
0.28
0.32
0.2
0.2
Source: Company, Angel Research
Sluggish growth in retail; non-retail portfolio gained momentum: LIC’s total loan
book grew by 15.3% yoy, during 3QFY2017. While LAP grew by 87.7% yoy (up
99% yoy in 2QFY2017; developer loans picked up further momentum up by
45.2% yoy v/s 22.4% yoy reported in 2QFY2017. However, the core retail loans
continued to be sluggish like the previous quarter and grew by only 9.2% yoy. The
share of LAP+ developer loans in the books continued to increase and stood at
13.7% v/s 12.5% qoq. LICHF’s noncore portfolio has been growing fast, however
as percentage to total portfolio, it still remains lower than other HFCs and is not a
cause of concern. The management has reiterated now onwards the focus will be
on core retail portfolio and it may not aggressively expand its LAP book.
Exhibit 2: Decent Growth in Advances
Exhibit 3: Disbursements remained healthy
(` cr)
1,40,000
14,000
13,216
1,35,366
1,35,000
1,31,096
12,000
1,30,000
1,27,437
9,684
1,25,173
10,000
9,123
8,390
1,25,000
7,542
8,000
1,20,000
1,14,069
6,000
1,15,000
4,000
1,10,000
1,05,000
2,000
1,00,000
-
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Source: Company, Angel Research
Source: Company, Angel Research
January 17, 2017
2
LIC Housing Finance | 3QFY2017 Result Update
Favorable cost of funds helped NIM improvement, marginal pressure expected
going ahead: During the quarter, the incremental yield on assets increased to
10.69% up 11 bps sequentially partly backed by high yielding LAP portfolio, while
the incremental costs stood at 8.19% down 21 bps sequentially. As a result, on a
qoq basis, incremental spread improved by 32 bps to 2.50% and NIM improved
by 7 bps to 2.75%. With sharp rate cuts by banks there will be competition in the
industry and LICHF also will have to face the same, however we feel volume
growth should pick up in the medium term, compensating the same in the quarters
to come.
Exhibit 4: Low cost funds added to NIM
Exhibit 5: NII growth trend
1,000
915
40.0%
3.00%
2.71%
2.68%
2.75%
2.61%
866
2.56%
900
821
825
35.0%
2.50%
800
717
30.0%
700
2.00%
25.0%
600
500
20.0%
1.50%
400
15.0%
1.00%
300
10.0%
200
0.50%
5.0%
100
-
0.0%
0.00%
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
NII
% YoY
Source: Company, Angel Research
Source: Company, Angel Research
Asset quality remained resilient: While there was initially fear of deterioration in
asset quality, post demonetization, the collection levels were not as bad as it was
perceived, which is visible from stable GNPAs of 0.56% and NNPAs 0.27%.
Contrary to expectations, the asset quality has seen fairly large stability in the last
few quarters and we don’t expect sharp deterioration in the medium term.
Exhibit 6: Stable Asset quality
Exhibit 7: Gross and Net NPAs remained stable
800
757
750
759
54.0%
0.70%
683
0.60%
0.59%
700
0.57%
52.0%
0.60%
0.56%
567
600
50.0%
0.50%
0.46%
500
48.0%
0.40%
369
356
368
361
0.32%
400
307
0.28%
0.28%
0.27%
46.0%
0.30%
300
0.22%
44.0%
0.20%
200
100
42.0%
0.10%
0
40.0%
0.00%
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q2FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
GNPAs (` Cr)
NNPAs (` Cr)
PCR %
GNPAs % NNPAs%
Source: Company, Angel Research
Source: Company, Angel Research
January 17, 2017
3
LIC Housing Finance | 3QFY2017 Result Update
Outlook and valuation
Outlook and valuation: The core retail portfolio continues to be sluggish growing
by less than 10%, however, other segments like LAP & Developer loans have been
driving the growth for LICHF. With lower interest rates and interest subvention
schemes by the Government we expect growth for housing to rebound in the
coming quarters, which should help the company in posting loan book CAGR of
19% over FY2016-18E, translating into an earnings CAGR of 18.0% over the same
period. The stock currently trades at 2.2x its FY2018E ABV. We maintain our BUY
rating on the stock with a Target Price of `630.
Company Background
LIC Housing Finance (LICHF) is one of the largest specialized mortgage lenders in
India, with a loan book size of ~ `1,35,00cr, of which ~97% is derived from the
retail segment. The company has a network of ~245 marketing offices spread
across the country and is promoted by the state-owned life insurance behemoth,
Life Insurance Corporation of India (LIC), which holds a 40.3% stake in the
company.
The company has a low-risk business model as ~82% of the loans are disbursed
to salaried customers. Loans to individuals account for 87.5% of the outstanding
loan book and the segment is the key focus area of the company. LAP accounts for
10.4% and loans to developers account for 3.3% of the total outstanding loan
book. The company’s incremental average ticket size of the loans stood at ~`20
lakh while the average cumulative ticket size stood at ~`12lakh.
Exhibit 8: Key Operating Indicators
Key Operating Indicators
FY13
FY14
FY15
FY16
Floating Loan Portfolio
49.0
42.0
37.0
47.0
LTV
59.7
54.5
50.9
46.6
Pre Payment Ratio
7.8
9.3
8.4
11.9
Income to Installment Ratio
33.9
34.7
33.9
33.3
Source: Company, Angel Research
January 17, 2017
4
LIC Housing Finance | 3QFY2017 Result Update
Income statement (standalone)
Y/E March (` cr)
FY2013 FY2014 FY2015
FY2016
FY2017E
FY2018E
NII
1,605
2,019
2,349
2,944
3,542
4,116
- YoY Growth (%)
8.4
25.8
16.4
25.3
20.3
16.2
Other Income
128
142
139
235
170
178
- YoY Growth (%)
(10.6)
10.5
(1.9)
68.8
(27.6)
4.7
Operating Income
1,733
2,160
2,488
3,179
3,712
4,293
- YoY Growth (%)
6.7
24.6
15.2
27.7
16.8
15.7
Operating Expenses
282
313
379
469
505
588
- YoY Growth (%)
18.9
11.1
21.1
23.6
7.8
16.3
Pre - Provision Profit
1,451
1,847
2,109
2,710
3,207
3,706
- YoY Growth (%)
4.6
27.3
14.2
28.5
18.3
15.6
Prov. & Cont.
79
21
7
146
223
183
- YoY Growth (%)
(49.5)
(72.8)
(66.2)
1,920.0
52.1
(17.8)
Profit Before Tax
1,372
1,826
2,102
2,564
2,984
3,522
- YoY Growth (%)
11.5
33.0
15.1
22.0
16.4
18.0
Prov. for Taxation
347
508
716
903
1,016
1,199
- as a % of PBT
25.3
27.8
34.1
35.2
34.1
34.1
PAT
1,026
1,317
1,386
1,661
1,968
2,323
- YoY Growth (%)
12.2
28.4
5.2
19.8
18.5
18.0
Balance sheet (standalone)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016
FY2017E
FY2018E
Share Capital
101
101
101
101
101
101
Reserve & Surplus
6,380
7,432
7,717
9,016
10,555
12,371
Loan Funds
68,764
81,486
96,532
1,11,509
1,30,465
1,53,917
- Growth (%)
22.6
18.5
18.5
15.5
17.0
18.0
Other Liab. & Prov.
4,407
4,414
5,622
6,409
7,509
8,995
Total Liabilities
79,653
93,432
1,09,972
1,27,035
1,48,631
1,75,384
Investments
185
199
237
274
320
378
Advances
77,813
91,341
1,08,361
1,25,173
1,46,452
1,72,814
- Growth (%)
23.4
17.4
18.6
15.5
17.0
18.0
Fixed Assets
62
76
80
92
108
127
Other Assets
1,593
1,817
1,295
1,496
1,750
2,065
Total Assets
79,653
93,432
1,09,972
1,27,035
1,48,631
1,75,384
January 17, 2017
5
LIC Housing Finance | 3QFY2017 Result Update
Ratio analysis (standalone)
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Profitability ratios (%)
NIMs
2.3
2.4
2.3
2.6
2.6
2.5
Cost to Income Ratio
16.3
14.5
15.2
14.7
13.6
13.7
RoA
1.4
1.5
1.4
1.4
1.4
1.4
RoE
16.9
18.8
18.1
19.6
19.9
20.1
Asset Quality (%)
Gross NPAs
0.61
0.67
0.46
0.45
0.54
0.50
Net NPAs
0.35
0.39
0.22
0.22
0.24
0.23
Provision Coverage
41.4
41.9
52.6
52.4
55.0
54.0
Per Share Data (`)
EPS
20.3
26.1
27.5
32.9
39.0
46.0
ABVPS (75% cover.)
125.2
145.2
152.6
178.0
207.9
243.4
DPS
3.8
4.5
5.0
6.0
7.1
8.4
Valuation Ratios
PER (x)
26.8
20.4
19.4
16.2
13.7
11.6
P/ABVPS (x)
4.3
3.7
3.5
3.0
2.6
2.2
Dividend Yield
0.8
0.9
1.0
1.2
1.4
1.7
DuPont Analysis
NII
2.2
2.3
2.3
2.5
2.6
2.5
(-) Prov. Exp.
0.1
0.0
0.0
0.1
0.2
0.1
Adj. NII
2.1
2.3
2.3
2.4
2.4
2.4
Treasury
(0.0)
0.0
0.0
0.0
0.0
0.0
Int. Sens. Inc.
2.1
2.3
2.3
2.4
2.4
2.4
Other Inc.
0.2
0.2
0.1
0.2
0.1
0.1
Op. Inc.
2.3
2.5
2.4
2.6
2.5
2.5
Opex
0.4
0.4
0.4
0.4
0.4
0.4
PBT
1.9
2.1
2.1
2.2
2.2
2.2
Taxes
0.5
0.6
0.7
0.8
0.7
0.7
RoA
1.4
1.5
1.4
1.4
1.4
1.4
Leverage
11.9
12.4
13.2
14.0
13.9
14.0
RoE
16.9
18.8
18.1
19.6
19.9
20.1
January 17, 2017
6
LIC Housing Finance | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
LIC Housing Finance
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
January 17, 2017
7