BoA ML on LIC Housing Finance: Ltd. Maintain Underperform

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Maintain Underperform on moderating return ratios
We raise our PO to Rs1050 (from Rs950) after raising projected earnings 4/7%
for FY11/12 post the 2QFY11 report to factor in higher-than-estimated volume
growth. But we maintain our Underperform as 1) core RoAs are expected to
moderate to 1.7% in FY12 from 1.9% in FY10 on visible spread pressure and
asset quality concerns on rising share of project loans and 2) positives appear
priced in with the stock having o/p indices by +25% over last 3 months. We
recommend a switch from LIC HFC to HDFC (C-1-7, Rs733.35), as LIC has o/p
HDFC by +20% over last 3 months and we remain bullish on HDFC delivering on
growth and spreads sustainably over the near term.
2QFY11: Growth (volume) at the cost of spreads

LIC HFC reported earnings of Rs2.3bn, 37% yoy growth (+18% ahead) driven by
+36% vol. growth, but spreads continued to decline qoq and yoy to 2.1% (down
6bps qoq and 29bps yoy). The pace of growth in project loan book has increased
to +80% yoy and now constitutes 11.3% of loans vs. 8.4% in 2QFY10. But overall
pace of disbursement growth has moderated from +60% in 4Q10 to 36% in 2Q11.
Gross NPLs declined 13% qoq and net by 35% (at 0.2%); prov. cover at +71%.
Raise earnings, but RoAs to moderate to 1.7% from 1.9%
We have increased our earnings estimates 4/7% for FY11/12 owing to higherthan-
estimated 2QFY11 earnings driven by volume growth, but we still estimate
earnings (recurring) growth to moderate to +20/19% over FY11/12 driven by
pressure on spreads and possible NPLs owing to rising share of project loans.
Accordingly, RoAs should moderate from 1.9% (FY10) to 1.7% in FY12.