India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
LIC Housing Finance |
Robust results but spreads under pressure |
UNDER REVIEW
CMP: Rs170 Target Price: Under Review
n LICHF earnings ahead of estimates at Rs3.0bn led by higher than expected NII and lower tax rate
n NIMs surprisingly expand by 22bps as LICHF revised lending rate on old loans by 50bps wef Oct 2010 even as incremental spreads contracted by 47bps
n Another 50bps hike in PLR (from Jan-11) alongwith 50-85bps increase in rates for advantage five scheme will contain the fall in incre spreads and strongly support NIMs
n Very positive on the stock with valuations at 1.6x FY12E ABV – almost near 10-yr average. We will be reviewing our rating and price target after talking to management
NII growth ahead of estimates…
The NII has grown by 54.5% yoy to Rs3.5bn driven by 36.0% yoy growth in advances
(7.0% qoq).
… As NIMs maintained sequentially; but incr spreads contract
As LICHF revised its benchmark lending rates by 50bps wef Oct-10, the NIMs during
the quarter expanded by 22bps and overall spreads were maintained. However,
incremental spreads contracted by sharp 47bps as the incremental cost of funds during
the quarer rose by 40bps and LICHF has not revised rates on new loans
NIMs can be maintained/incremental spread to improve next quarter
As LICHF has revised its benchmark lending rates by 50bps more wef Jan-11 and also
revised rates for advantage-five scheme by 50-85bps, we expect these two together to not
only support the existing NIMs but also help improve incremental spreads in Q4FY11.
Sanctions decline qoq due to high base
The sanctions in the individual loans have grown by 89.6% yoy, albeit have declined 6.9%
qoq as the growth in individual sanction was very sharp in Q2FY11 due to seasonality.
Disbursement grew at healthy pace
The individual disbursements during the quarter grew by 40.8% yoy (10.4% qoq). As a
result the D/S ratio increased to 79% fron 67% in Q2FY11.
Controlled expenses help further
While, the strong growth in the balance sheet has resulted in pressure on the employee
costs, the operating leverage has helped in containing other costs. With Opex controlled at
13.4% of the net income, the operating profit grew by 51.7% yoy.
Teaser loan provisions offset against one-time gains
Unlike HDFC, LICHF has passed on some part of the teaser rate loan provisions through
P&L. During the quarter LICHF has provided Rs2.4bn for the teaser loan provisions through
P&L while routing balance Rs1.0bn through reserves. Extra-ordinary gains of Rs1.4bn on
sale of its stake in LICHF mutual fund (booked during the quarter) has partially offset the
impact of one-time provisions.
Asset quality remains strong
The asset quality remained robust as the gross and net NPAs stood stable at 0.7% and
0.1% of advances compared with 0.7% and 0.1% in Q2FY11. On yoy basis, the gross and
net NPAs have declined by 34.6% and 68.1%.
Valuations and view
We believe that LICHF’s NIMs can ward off the pressure of the rising cost of funds in
coming quarters as the revisions in PLR for old loans and increase in the new loan rates will
help mitigating the pressure on funding costs
At the CMP, the stock is quoting at 1.9x FY11E ABV and 1.6x FY12E ABV. The valuations
are almost near their 10-year average one-year forward P/ABV. We remain positive on the
stock. We will be reviewing our rating and price target after talking to management.
No comments:
Post a Comment