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UBS Investment Research
LIC Housing Finance
S trong beat to the numbers
Event: Q4 earnings ahead of estimates
LIC housing reported earnings of Rs 3.15 bn (47% Y/Y) well ahead of our
estimated Rs 2.5 bn. NII grew by 41% Y/Y to Rs 4.2 bn (UBS estimates Rs 3.6bn)
as both loan growth (34% Y/Y) and NIM at 3.5% (up 31 bps QoQ) came better
than expected. Adjusting for one-off portfolio purchase (Rs 12.5 bn in Q4), loan
growth was in line (31% Y/Y), while flat funding costs led to NIM surprise.
Impact: Raise FY12/13E estimates by 16%/20%
We raise our earnings estimate by 16% in FY12E and 20% in FY13E due to 1)
Higher NII estimates given stronger loan growth and NIM outlook 2) LICHF plans
to restructure its 5 year product in May; post which 2% general provisioning
requirements incrementally would not be required.
Action: Valuations look fair, Raise PT but maintain Sell
LICHF stock has outperformed markets and banks by 19%/13% respectively over
last 3 months and current valuations now are at a significant premium to its own
history. While profitability of the company has improved over last 3 years, we
believe risks exist in form of slower mortgage market, higher competition &
pressure on cost of funds.
Valuation: Sell, PT of Rs 200
We value the stock using residual income method at Rs200 which implies 1.8x
FY12E book and 8x earnings.
LIC Housing Finance
LIC Housing Finance Limited (LICHF) was established by LIC of India in June
1989 with the objective of providing long-term housing loans to individuals. It
was listed on the NSE in 1994. As at March 2010, LICHF had 181 marketing
offices and overseas representative offices in Dubai and Kuwait. It had 1,008
employees as of June 2010. During FY10, LICHF sanctioned loans amounting
to Rs180bn and disbursements worth Rs149bn. Its outstanding loan book stood
at Rs380bn in FY10. LIC holds 36.5% of shares outstanding and FIIs holds 32%
as at June 2010.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit; increase NPL risk;
impact fee income; and exert pressure on NIMs We believe a slowdown in real
estate volumes and a spike in interest rates could impact mortgage demand. A
spike in interest rates and irrational competition will impact NIMs. A change in
management could lead to concerns on the continuity of the company’s strategy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
LIC Housing Finance
S trong beat to the numbers
Event: Q4 earnings ahead of estimates
LIC housing reported earnings of Rs 3.15 bn (47% Y/Y) well ahead of our
estimated Rs 2.5 bn. NII grew by 41% Y/Y to Rs 4.2 bn (UBS estimates Rs 3.6bn)
as both loan growth (34% Y/Y) and NIM at 3.5% (up 31 bps QoQ) came better
than expected. Adjusting for one-off portfolio purchase (Rs 12.5 bn in Q4), loan
growth was in line (31% Y/Y), while flat funding costs led to NIM surprise.
Impact: Raise FY12/13E estimates by 16%/20%
We raise our earnings estimate by 16% in FY12E and 20% in FY13E due to 1)
Higher NII estimates given stronger loan growth and NIM outlook 2) LICHF plans
to restructure its 5 year product in May; post which 2% general provisioning
requirements incrementally would not be required.
Action: Valuations look fair, Raise PT but maintain Sell
LICHF stock has outperformed markets and banks by 19%/13% respectively over
last 3 months and current valuations now are at a significant premium to its own
history. While profitability of the company has improved over last 3 years, we
believe risks exist in form of slower mortgage market, higher competition &
pressure on cost of funds.
Valuation: Sell, PT of Rs 200
We value the stock using residual income method at Rs200 which implies 1.8x
FY12E book and 8x earnings.
LIC Housing Finance
LIC Housing Finance Limited (LICHF) was established by LIC of India in June
1989 with the objective of providing long-term housing loans to individuals. It
was listed on the NSE in 1994. As at March 2010, LICHF had 181 marketing
offices and overseas representative offices in Dubai and Kuwait. It had 1,008
employees as of June 2010. During FY10, LICHF sanctioned loans amounting
to Rs180bn and disbursements worth Rs149bn. Its outstanding loan book stood
at Rs380bn in FY10. LIC holds 36.5% of shares outstanding and FIIs holds 32%
as at June 2010.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit; increase NPL risk;
impact fee income; and exert pressure on NIMs We believe a slowdown in real
estate volumes and a spike in interest rates could impact mortgage demand. A
spike in interest rates and irrational competition will impact NIMs. A change in
management could lead to concerns on the continuity of the company’s strategy.
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