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EARNINGS REVIEW
LIC Housing Finance (LICH.BO)
Neutral Equity Research
Below expectations on lower NII, high provisions; remain Neutral
What’s changed
LICHF reported 1QFY12 net profit of Rs2.56bn (+21% yoy, -19% qoq), 8% below
GSe and 6% below Bloomberg consensus. Key highlights: (1) NII grew 23% yoy
(-14% qoq, 11% below GSe), driven by 32% yoy growth in outstanding
advances, which was offset by a 45bp yoy compression in reported spreads
(1.79% in 1QFY12 vs. 2.24% in 1QFY11). For FY12E, we are building in a 43bp
yoy compression in lending spreads; (2) Overall disbursement/new loans
growth came in at +5% yoy (vs. GSe of 27%) as retail grew +15% yoy but loans
to developers declined a sharp 79% yoy. Currently, developer loans are 7.6% of
total loans, which management has indicated would rise to 8%-10% in the near
term; (3) Provisions came in well ahead of our expectations at Rs334mn on
account of a meaningful rise in gross NPLs (+21% yoy, +84% qoq). While
management attributed this to seasonality, the increase does appear steep and
we believe this was led by retail not developer loans, likely due to aggressive
expansion in loan book in the past; (4) Tier-I CAR was reported at 8.5%. In our
view, this seems low and LICHF will likely need to raise capital in the near term.
Retain Neutral on continued margin compression
We fine-tune our FY12E-FY14E EPS by -0.6%/-1.9%/-4.3% to reflect lower NIIs
on account of declining NIMs, partially offset by lower expenses. The stock is
trading near peak valuations – 2.0X FY12E P/B, 9.3X FY12E P/E (vs. historical
P/B of 0.9X and P/E of 5.2X). We remain Neutral as we believe the stock would
remain range-bound on margin pressures, and see better upside in other India
financials within our coverage. Our 12-month CAMELOT-based target price of
Rs230 remains unchanged. Downside risks: Lower growth. Upside risks: (1)
aggressive re-pricing of loans; (2) developments on banking license.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
LIC Housing Finance (LICH.BO)
Neutral Equity Research
Below expectations on lower NII, high provisions; remain Neutral
What’s changed
LICHF reported 1QFY12 net profit of Rs2.56bn (+21% yoy, -19% qoq), 8% below
GSe and 6% below Bloomberg consensus. Key highlights: (1) NII grew 23% yoy
(-14% qoq, 11% below GSe), driven by 32% yoy growth in outstanding
advances, which was offset by a 45bp yoy compression in reported spreads
(1.79% in 1QFY12 vs. 2.24% in 1QFY11). For FY12E, we are building in a 43bp
yoy compression in lending spreads; (2) Overall disbursement/new loans
growth came in at +5% yoy (vs. GSe of 27%) as retail grew +15% yoy but loans
to developers declined a sharp 79% yoy. Currently, developer loans are 7.6% of
total loans, which management has indicated would rise to 8%-10% in the near
term; (3) Provisions came in well ahead of our expectations at Rs334mn on
account of a meaningful rise in gross NPLs (+21% yoy, +84% qoq). While
management attributed this to seasonality, the increase does appear steep and
we believe this was led by retail not developer loans, likely due to aggressive
expansion in loan book in the past; (4) Tier-I CAR was reported at 8.5%. In our
view, this seems low and LICHF will likely need to raise capital in the near term.
Retain Neutral on continued margin compression
We fine-tune our FY12E-FY14E EPS by -0.6%/-1.9%/-4.3% to reflect lower NIIs
on account of declining NIMs, partially offset by lower expenses. The stock is
trading near peak valuations – 2.0X FY12E P/B, 9.3X FY12E P/E (vs. historical
P/B of 0.9X and P/E of 5.2X). We remain Neutral as we believe the stock would
remain range-bound on margin pressures, and see better upside in other India
financials within our coverage. Our 12-month CAMELOT-based target price of
Rs230 remains unchanged. Downside risks: Lower growth. Upside risks: (1)
aggressive re-pricing of loans; (2) developments on banking license.
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