LIC Housing Finance: Improvement in RoA to drive valuation re-rating

India Infoline News Service | Mumbai |

Over FY11-13, LICHF’s NIM saw a steep correction of 90bps with the shift in portfolio mix, intense price competition and deterioration in developer portfolio restricting the uptick in portfolio yield in an increasing funding cost environment.

CMP Rs238, Target Rs285, Upside 19.7%
 

Loan book to witness healthy CAGR of 18%

LIC Housing Finance (LICHF), 3rd largest player in the mortgage market with ~13% share, is witnessing growth moderation as disbursement growth in retail mortgages has come off while it remains weak in the developer segment. We expect portfolio growth to further moderate to 16% in FY15 but recover strongly in FY16 to 19%. In our view, retail disbursements should start reviving after a couple of quarters supported by improvement in underlying demand and a stable-to-increasing property prices. Growth in developer segment is also expected to pick-up as asset quality risks abate and construction activity improve. 

 

NIM to see a gradual recovery; incremental spreads improving 

Incremental spread after hitting a low of 1.1-1.2% has improved 1.4% in recent quarters. This trend of gradual recovery would continue in the medium term translating into improved NIM in FY15. Cost of funding is expected to decline materially over FY14-16 on account of improved liquidity conditions, easing of policy rates and shift in funding mix away from relatively costlier bank borrowings. On the other side, blended portfolio yield is likely to display some resilience as 50%+ of the portfolio is at fixed rate, share of LAP and developer loans is estimated to increase and it is likely that market would hold pricing in the initial phase of easing cycle. 

 

Asset quality to stabilize; RoA to improve

After witnessing significant deterioration, asset quality is expected to stabilize in coming quarters as macro environment improves. As per company, most of the problem accounts in developer segment have been identified and therefore further large slippages are unlikely. Delinquencies in retail mortgages segment are expected to remain benign. Credit cost is estimated to remain low due to reversal of teaser loan provisioning and expected recoveries from defaulted developers. This along with NIM recovery will drive RoA expansion to 1.7%. In this context, LICHF’s valuation at 1-yr rolling fwd 1.4x P/ABV (~20% discount to 5-year mean) is attractive. The key risk to our case for near-term valuation re-rating would be the award of banking license.


Financial summary
Y/e 31 Mar (Rs m)
FY13
FY14E
FY15E
FY16E
Total operating income
17,343
22,024
26,733
31,556
Yoy growth (%)
6.8
27.0
21.4
18.0
Operating profit (pre-provisions)
14,524
18,867
23,072
27,271
Net profit
10,232
13,187
16,227
18,631
yoy growth (%)
11.9
28.9
23.1
14.8

 
 
 
 
EPS (Rs)
20.3
26.1
32.1
36.9
Adj. BVPS (Rs)
122.8
139.8
162.5
188.7
P/E (x)
11.7
9.1
7.4
6.5
P/Adj.BV (x)
1.9
1.7
1.5
1.3
ROE (%)
16.8
18.8
19.8
19.5
ROA (%)
1.5
1.6
1.7
1.7
CAR (%)
14.8
17.0
15.8
14.5
Source: Company, India Infoline Research
BSE 557.90 6.45 (1.17%)
NSE 557.90 6.50 (1.18%)

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.