LIC Housing Finance (Q1 FY15)

India Infoline News Service | Mumbai |

LIC Housing Finance (LICHF) mortgage portfolio grew in-line with our expectation at 17% yoy.

CMP Rs291, Target Rs350, Upside 20.3% 
  • Mortgage portfolio grows by strong 17% yoy; developer book contribution declines to multi-year low

  • NIM decline of 20bps qoq was a negative surprise; to revert to 2.4-2.5% by the end of the year 

  • Asset quality intact; profit depressed by one-off adjustment 

  • Valuation to re-rate with better performance in coming quarters; Retain Buy

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Operating Income 25,091 24,433 2.7 21,488 16.8
Interest Expenses (19,764) (18,743) 5.4 (16,755) 18.0
Net Interest Income 5,328 5,690 (6.4) 4,733 12.6
Other income 345 346 (0.5) 291 18.5
Total Income 5,672 6,037 (6.0) 5,024 12.9
Operating expenses (675) (1,043) (35.3) (612) 10.2
Provisions (92) 223 (141.1) (171) (46.5)
PBT 4,906 5,216 (5.9) 4,240 15.7
Tax (1,658) (1,516) 9.4 (1,135) 46.1
PAT 3,248 3,700 (12.2) 3,105 4.6
EPS 6.4 7.3 (12.2) 6.2 4.6
Business Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
O/S mortgage portfolio 936,090 913,410 2.5 801,370 16.8
of which, Individuals 910,590 885,590 2.8 777,270 17.2
of which, Corporate 25,510 27,820 (8.3) 24,100 5.9
Key  Ratios Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
NIM (%) - Reported 2.2 2.4 (21) 2.3 (11)
YoA (%) - Computed 10.9 11.0 (14) 10.9 (3)
Cost/Income (%) 11.9 17.3 (539) 12.2 (30)
Gross NPA (%) 0.8 0.7 0.13 0.8 -
Net NPA (%) 0.5 0.4 0.10 0.5 (0.03)
Source: Company, India Infoline Research

Mortgage portfolio grows by strong 17% yoy; developer book contribution declines to multi-year low

LIC Housing Finance (LICHF) mortgage portfolio grew in-line with our expectation at 17% yoy. The growth was entirely driven by retail mortgages which grew faster than the overall book. While company’s wide distribution continues to generate volumes, firm-to-higher property prices have also been supporting portfolio growth. As intended, LAP portfolio continues to grow at robust pace (35% yoy) albeit on a small base and its share in the overall book increased to 4%. With LAP disbursements growing at more than 100% yoy, its share is expected to reach 5% by the end of FY15. Developer loans shrunk by 8% qoq on weak disbursements (only Rs850mn) and much larger repayments with its share falling to multi-year low of 2.7%. In this segment, company continues to pursue only selective opportunities where lending comfort is high. However, it does not see the share of developer loans further declining from current levels. Overall, management expects mortgage portfolio to grow by 20% in the current fiscal.     


NIM decline of 20bps qoq was a negative surprise; to revert to 2.4-2.5% by the end of the year 

Against our expectation of stable NIM, LICHF witnessed a material 20bps correction. While the blended lending yield was largely stable, cost of funds inched-up on the back of much higher incremental cost of borrowing during the quarter (~30bps higher than Q4 FY14). This was attributable to shift in funding mix away from cheaper NCDs (average cost at 9.3-9.4%) and towards relatively expensive bank borrowings (average cost at 10.7-10.8%). In April-May, company could not raise money from the bond market due to issues related to Company’s Act. Of the incremental borrowings of ~Rs25bn, higher-cost bank borrowings contributed 50-55% as against its share of 25-26% in the aggregate outstanding borrowings. As per the company, since June the accessibility of bond market has reverted to normal levels and it has raised Rs20bn in July at a very competitive rate of 9.3% (lower than average cost of its NCD stock). A portion of this has been used to repay bank borrowings and therefore the overall cost of funds would come-off in Q2 FY15. Benign liquidity environment also augurs well for LICHF’s borrowing cost in the long term. On the other side, a gradual increase in portfolio share of much higher yielding LAP (13-13.5%) and developer loans (14.5%) would keep the blended lending yield relatively firm. Therefore, we expect NIM to recover soon and stabilize in an elevated range of 2.4-2.5% by the end of the year. 


Asset quality intact; profit depressed by one-off adjustment 

LICHF’s asset quality was intact underlined by sustained impressive credit performance of the retail mortgage portfolio where Gross NPL level remained low at 0.4%. Also developer book asset quality was stable with slight uptick in Gross NPL level to 15% mainly driven by contraction of the portfolio. During the quarter, credit cost was low at Rs92mn with the company benefitting from provisioning release of Rs440mn on teaser loans. Overall Net NPLs stood at 0.8%, steady on yoy basis. With the developer loan portfolio having witnessed the worst, overall asset quality of the company is expected to gradually improve aided by acceleration in portfolio growth. With residual provisioning on teaser loans amounting to Rs540mn to release in the current quarter, credit cost for the year is expected to be marginal. During the quarter, LICHF had to make to a one-off provisioning towards deferred tax liability on special reserve amounting to Rs322mn which depressed the bottomline.


Valuation to re-rate with better performance in coming quarters; Retain Buy

Though Q1 FY15 performance of LICHF was below par due to both operational (NIM slippage) and non-operational (one-off adjustment) factors, we retain our constructive stance on the company as we see operational bounce-back in ensuing quarters. Growth acceleration and NIM recovery should translate into strong earnings CAGR of 19% over FY14-16. Average RoA and RoE delivery would also be healthy at 1.5% and 19% respectively. Given this expected backdrop, valuation at 1.5x FY16 P/ABV has room for re-rating in the medium term. Retain BUY recommendation on LICHF with 9-12 month target price of Rs350.


Financial Summary
Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E
Total operating income 17,343 21,602 25,431 31,614
yoy growth (%) 6.8 24.6 17.7 24.3
Operating profit (pre-prov) 14,524 18,471 21,893 27,545
Net profit 10,232 13,173 15,084 18,724
yoy growth (%) 11.9 28.7 14.5 24.1
         
EPS (Rs) 20.3 26.1 29.9 37.1
Adj. BVPS (Rs) 122.9 142.1 164.4 192.6
P/E (x) 14.4 11.2 9.7 7.8
P/BV (x) 2.4 2.0 1.8 1.5
ROE (%) 16.8 18.8 18.5 19.7
ROA (%) 1.4 1.5 1.5 1.5
Dividend yield (%) 1.2 1.5 1.7 2.2
CAR (%) 16.5 15.3 14.7 14.0
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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