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LIC Housing Finance (LICHF) 2QFY11 net profit was up c.37% yoy to Rs2.34
bn (10% ahead of our estimate when we exclude the one-time gain of
Rs1.38 bn that we had earlier factored in 2Q on the mutual fund stake sale,
which the company now expects to close in 3Q). PBT before provisions
was 2% below our estimate, as LICHF made negligible provisions, given
Rs1.1 bn (0.3% of 2QFY11 loans) of buffer standard provisions held and
improvement in asset quality (Gross NPLs were 0.7%, down 13% qoq and
22% yoy in absolute terms).
Analysis
NII was up 63% yoy (on a lower base; 1% below our estimate) to Rs3.1 bn,
on a 49 bp yoy NIM expansion to 2.9% and disbursement growth of 36%
yoy. However, NIMs/spreads declined qoq by c.10 bp as the incremental
cost of funds rose by 43 bp qoq and 73 bp yoy, reflecting a 360 bp spike in
short-term systemic rates since December 2009. Part of the qoq rise in
costs was likely absorbed, as incremental yields rose 37 bp qoq due to (1) a
50 bp PLR hike in August (65% of loans are floating); and (2) a rising share
of loans to corporates/developers. While disbursement growth remained
strong, retail disbursements were up only 15% yoy in 2Q on a higher base,
and 22% on an ytd basis. Non-retail loans were up 207% yoy. Year-to-date,
albeit on a lower base, non-retail loans now comprise 11% of total loans
vs. 8% in the same period last year. Thus, while the risk profile of the
company increases, we believe stable margins/spreads may be delivered in
FY2011E.
Our price target and estimates are under review, pending further
clarification with management.
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