Visit http://indiaer.blogspot.com/ for complete details LIC HOUSING 2QFY11: Above estimates; Business growth remains strong; Spread decline 11bp QoQ;Maintain Neutral
LIC Housing (LICHF IN, Mkt Cap US$3.1b, CMP Rs1,458, Neutral) reported 37% YoY growth in 2QFY11 net profit to Rs2.3b (vs est of Rs2.04b. Key highlights:
- In 2QFY11, disbursals grew 36% YoY and sanctions 43% YoY. For 1HFY11, disbursements grew 37% YoY and sanctions grew 46% YoY.
- Loans grew 8.4% QoQ and 36% YoY to Rs433b; proportion of builder loans increased to 11.3% vs 10.5% a quarter ago. ~20% of the incremental growth in loans came from builder loans.
- Robust net income growth at 53% YoY (on a lower base) was led by loan growth of 36% and 49bp YoY improvement in NIMs to 2.93%. On a QoQ basis, margins have declined 8bp.
- Reported spreads have dropped 11bp QoQ to 2.13% led by 10bp increase in cost of funds to 7.91%. Yield on loans were stable QoQ at 10.04%. Lower than expected decline in spreads came from higher proportion of incremental loans to builders. Incremental spreads have declined further to 2.12% vs 2.18% in 1QFY11 and 2.4% in 2QFY10.
- Asset quality improved sequentially with GNPA at Rs3.2b vs Rs3.7b in 1QFY11. In percentage terms, Gross NPAs declined to 0.74% vs 0.92% in 1QFY11 while Net NPAs decreased to 0.21% vs 0.35%.
Strong loan growth continues
- Sanctions grew 43% YoY to Rs76.7b. Sanctions to builders increased to Rs19.7b (up 110% YoY on a lower base) and sanctions for individual loans stood at Rs56.9b (up 29% YoY).
- Disbursements grew 36% YoY to Rs51b. Disbursements for individual home loans grew 13% YoY to Rs38.2b and for builder loans stood at Rs12.8b (up 248% YoY on a lower base).
- Loan book grew 36% YoY and 8% QoQ to Rs433b. Individual loans growth remains healthy at 32% YoY to Rs385b and builder loans grew 83% YoY to Rs48.9b. Share of project loans (financing to builders) increased to 11.3% v/s 8.7% in 1QFY10 and 10.5% in 1QFY11.
- Total outstanding borrowings at the end of 2QFY11 increased 9.7% sequentially to Rs392b.
- Management has guided to keep exposure to project loans (i.e. to builders) at ~12% levels. This is with the view to achieve long-term sustainability and stability in income as this segment yields ~14%
Valuation and view
- We upgrade our earnings for LICHF on the back of expectations of strong disbursals. While management guided for 30-35% loan growth over FY11-12, we have modeled for 30% growth (vs earlier estimate of 27%). We are revising our EPS estimates upwards by 5% to Rs97 for FY11E and Rs118 for FY12E.
- LIC Housing is trading at its best-ever valuations. Re-rating is driven by organizational restructuring (completed in FY07), which led to significant improvements in loan growth and market share, higher profitability and improvement in asset quality.
- The stock trades at FY12 P/BV of 2.7x and PE of 12.4x with a RoA of ~2% and RoE of ~24%. While we remain positive on business, headwinds like constrained liquidity situation, rise in cost of funds and compression in spreads, increasing competition (ICICI Bank likely to become aggressive again) will drive underperformance, in our view. Besides, valuations are rich. Maintain Neutral.
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