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LIC HOUSING FINANCE
PRICE: RS.174
RECOMMENDATION: BUY
TARGET PRICE: RS.240
FY12E P/E: 8.0X; P/ABV: 1.7X
In Q3FY11, NII grew 54.5% YoY on back of strong loan growth (35.7% YoY)
along with margin expansion (38 bps YoY; 21 bps QoQ). Net Income was
also up 39.0% YoY on back of strong core performance and Rs.1.37 bn gain
from 17% stake sale in LIC AMC despite higher standard asset provisions
(Rs.2.2 bn through P&L).
Sanctions & disbursement grew at healthy pace (28% YoY each) mainly on
back of strong traction in retail segments. Unsurprisingly, developer loan
took a breather and its disbursement declined 32.5% YoY during Q3FY11.
Asset quality improved sequentially along with improvement in provision
coverage- gross NPA and net NPA stood at 0.67% (Q3FY10: 1.44%) and 0.18%
(Q3FY10: 0.77%), respectively.
LICHF has made total provisions of Rs.3.2 bn on its dual rate home loans
(~Rs.160 bn) as a prudent measure even though clarifications are awaited
from NHB. It has also utilized Rs.1.0 bn of excess reserves and rest Rs.2.2 bn
has come through P&L.
At the CMP, stock is trading attractively at 1.7x its FY12E ABV and 8.0x its
FY12E earnings. Hence, we reiterate BUY recommendation on the stock with
unchanged TP of Rs.240.
Core performance remained strong, aided by robust loan growth
as well margin improvement
In Q3FY11, NII grew 54.5% YoY to Rs.3.52 bn on back of strong loan growth
(35.7% YoY) along with margin expansion (38 bps YoY; 21 bps QoQ). Net Income
was also up 39.0% YoY to Rs.2.14 bn in Q3FY11 from Rs.1.54 bn in Q3FY10 on
back of strong core performance and Rs.1.37 bn gain from 17% stake sale in LIC
AMC despite higher standard asset provisions (Rs.2.2 bn through P&L).
LICHF has reported mortgage growth of 35.7% YoY to Rs. 463.8 bn in Q3FY11
mainly on back of strong growth in retail disbursements (41% YoY) while developer
loan took a breather and its disbursement declined 32.5% YoY. Due to this, its outstanding developer's loan book has declined from 11.3% at the end of Q2FY11 to
10.5% at the end of Q3FY11 of the total loan book.
During Q3FY11, developer loans witnessed 71.9% and 32.5% decline in sanctions
and disbursements, respectively. However, strong traction in retail segments in both
sanctions as well as disbursements led to healthy growth of 28% each in both sanctions and disbursements.
Asset quality continued to improve; one-off item Rs.1.37 bn of
treasury gain from 17% stake sale in LIC AMC used to enhance
standard asset provisions on teaser loans
Asset quality improved YoY as well as QoQ - in absolute terms, gross NPA declined
by 36% and 2% YoY and QoQ, respectively. Similarly, net NPA also declined by
68% and 7% YoY and QoQ, respectively.
In percentage terms, gross NPA improved to 0.67% at the end of Q3FY11 from
1.44% in Q3FY10 and 0.74% at the end of Q2FY11. Similarly, net NPA also improved to 0.18% at the end of Q3FY11 from 0.77% at the end of Q3FY10 and
0.21% at the end of Q2FY11.
Provision coverage ratio also improved to 73.2% at the end of Q3FY11 from 46.2%
at the end of Q3FY10 and 71.8% at the end of Q2FY11.
LICHF has also used one-off item worth Rs.1.37 bn of treasury gain from 17% stake
sale in LIC AMC to enhance standard asset provisions on teaser loans (according to
recent NHB guidelines, housing finance companies need to make 2% standard asset
provisions on teaser loans). Bank has made total provisions of Rs.3.2 bn on its dual
rate home loans (~Rs.160 bn) as a prudent measure even though clarifications are
awaited from NHB. It has utilized Rs.1.0 bn of excess reserves and rest Rs.2.2 bn has
come through P&L.
NIM improved both YoY as well as QoQ - positive surprise for us
NIM improved to 3.14% in Q3FY11 from 2.76% in Q3FY10 and 2.93% in Q2FY11.
This has come on back of 17 bps improvement in yield on advances while cost of
funds rose by only 4 bps.
Spread has also improved from 1.95% in Q3FY10 to 2.08% in Q3FY11. Although
spread declined by 4bps QoQ from 2.12% in Q2FY11 to 2.08% in Q3FY11, NIM
improved by 21 bps during the same period. This anomaly can be explained by the
method of calculation - NIM is calculated on the average loans book whereas
spread calculation takes into account the borrowing cost on the last day of the quarter.
We believe going forward, LICHF is likely to witness slight compression in its margin.
This is visible from the decline in incremental spread which came down to 1.65% in
Q3FY11 from 3.01% in Q3FY10 and 2.12% in Q2FY11. However, we believe recent
hike of 50 bps in lending rate during January 2011 is likely to help it to a certain
extent in tiding over the margin pressure.
Valuation and recommendation
We expect advances growth of 30% YoY for FY11 and 23% YoY for FY12 to Rs.
495.6bn and Rs.606.7bn respectively. We expect net profit of Rs.9.6 bn and Rs.10.3
bn for FY11 and FY12. This would translate into EPS of Rs.20.2 and Rs.21.7 for FY11
and FY12, respectively. Adjusted book value is forecasted at Rs.85.2 and Rs.100.5,
respectively for the same period.
At the CMP, stock is trading attractively at 1.7x its FY12E ABV and 8.0x its FY12E
earnings. Hence, we reiterate BUY recommendation on the stock with unchanged
TP of Rs.240.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
LIC HOUSING FINANCE
PRICE: RS.174
RECOMMENDATION: BUY
TARGET PRICE: RS.240
FY12E P/E: 8.0X; P/ABV: 1.7X
In Q3FY11, NII grew 54.5% YoY on back of strong loan growth (35.7% YoY)
along with margin expansion (38 bps YoY; 21 bps QoQ). Net Income was
also up 39.0% YoY on back of strong core performance and Rs.1.37 bn gain
from 17% stake sale in LIC AMC despite higher standard asset provisions
(Rs.2.2 bn through P&L).
Sanctions & disbursement grew at healthy pace (28% YoY each) mainly on
back of strong traction in retail segments. Unsurprisingly, developer loan
took a breather and its disbursement declined 32.5% YoY during Q3FY11.
Asset quality improved sequentially along with improvement in provision
coverage- gross NPA and net NPA stood at 0.67% (Q3FY10: 1.44%) and 0.18%
(Q3FY10: 0.77%), respectively.
LICHF has made total provisions of Rs.3.2 bn on its dual rate home loans
(~Rs.160 bn) as a prudent measure even though clarifications are awaited
from NHB. It has also utilized Rs.1.0 bn of excess reserves and rest Rs.2.2 bn
has come through P&L.
At the CMP, stock is trading attractively at 1.7x its FY12E ABV and 8.0x its
FY12E earnings. Hence, we reiterate BUY recommendation on the stock with
unchanged TP of Rs.240.
Core performance remained strong, aided by robust loan growth
as well margin improvement
In Q3FY11, NII grew 54.5% YoY to Rs.3.52 bn on back of strong loan growth
(35.7% YoY) along with margin expansion (38 bps YoY; 21 bps QoQ). Net Income
was also up 39.0% YoY to Rs.2.14 bn in Q3FY11 from Rs.1.54 bn in Q3FY10 on
back of strong core performance and Rs.1.37 bn gain from 17% stake sale in LIC
AMC despite higher standard asset provisions (Rs.2.2 bn through P&L).
mainly on back of strong growth in retail disbursements (41% YoY) while developer
loan took a breather and its disbursement declined 32.5% YoY. Due to this, its outstanding developer's loan book has declined from 11.3% at the end of Q2FY11 to
10.5% at the end of Q3FY11 of the total loan book.
During Q3FY11, developer loans witnessed 71.9% and 32.5% decline in sanctions
and disbursements, respectively. However, strong traction in retail segments in both
sanctions as well as disbursements led to healthy growth of 28% each in both sanctions and disbursements.
Asset quality continued to improve; one-off item Rs.1.37 bn of
treasury gain from 17% stake sale in LIC AMC used to enhance
standard asset provisions on teaser loans
Asset quality improved YoY as well as QoQ - in absolute terms, gross NPA declined
by 36% and 2% YoY and QoQ, respectively. Similarly, net NPA also declined by
68% and 7% YoY and QoQ, respectively.
In percentage terms, gross NPA improved to 0.67% at the end of Q3FY11 from
1.44% in Q3FY10 and 0.74% at the end of Q2FY11. Similarly, net NPA also improved to 0.18% at the end of Q3FY11 from 0.77% at the end of Q3FY10 and
0.21% at the end of Q2FY11.
Provision coverage ratio also improved to 73.2% at the end of Q3FY11 from 46.2%
at the end of Q3FY10 and 71.8% at the end of Q2FY11.
LICHF has also used one-off item worth Rs.1.37 bn of treasury gain from 17% stake
sale in LIC AMC to enhance standard asset provisions on teaser loans (according to
recent NHB guidelines, housing finance companies need to make 2% standard asset
provisions on teaser loans). Bank has made total provisions of Rs.3.2 bn on its dual
rate home loans (~Rs.160 bn) as a prudent measure even though clarifications are
awaited from NHB. It has utilized Rs.1.0 bn of excess reserves and rest Rs.2.2 bn has
come through P&L.
NIM improved both YoY as well as QoQ - positive surprise for us
NIM improved to 3.14% in Q3FY11 from 2.76% in Q3FY10 and 2.93% in Q2FY11.
This has come on back of 17 bps improvement in yield on advances while cost of
funds rose by only 4 bps.
Spread has also improved from 1.95% in Q3FY10 to 2.08% in Q3FY11. Although
spread declined by 4bps QoQ from 2.12% in Q2FY11 to 2.08% in Q3FY11, NIM
improved by 21 bps during the same period. This anomaly can be explained by the
method of calculation - NIM is calculated on the average loans book whereas
spread calculation takes into account the borrowing cost on the last day of the quarter.
We believe going forward, LICHF is likely to witness slight compression in its margin.
This is visible from the decline in incremental spread which came down to 1.65% in
Q3FY11 from 3.01% in Q3FY10 and 2.12% in Q2FY11. However, we believe recent
hike of 50 bps in lending rate during January 2011 is likely to help it to a certain
extent in tiding over the margin pressure.
Valuation and recommendation
We expect advances growth of 30% YoY for FY11 and 23% YoY for FY12 to Rs.
495.6bn and Rs.606.7bn respectively. We expect net profit of Rs.9.6 bn and Rs.10.3
bn for FY11 and FY12. This would translate into EPS of Rs.20.2 and Rs.21.7 for FY11
and FY12, respectively. Adjusted book value is forecasted at Rs.85.2 and Rs.100.5,
respectively for the same period.
At the CMP, stock is trading attractively at 1.7x its FY12E ABV and 8.0x its FY12E
earnings. Hence, we reiterate BUY recommendation on the stock with unchanged
TP of Rs.240.
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