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We downgrade LIC Housing to IN-LINE from
OUTPERFORM due to lack of near-term earnings
triggers and potential risks to retail loan growth and
NPLs in the quarters ahead. Price target lowered to
Rs210 (Rs235 earlier).
1Q FY12 earnings reported today were weak with
slowdown in retail disbursement growth to 15% yoy,
45bps qoq decline in adjusted NIMs, a sharp rise in
NPLs in 1Q partly due to seasonality and the sharp
decline in provisioning cover to 59%.
Management clarified that April was a bad month, which
pulled down overall 1Q disbursal growth
Slow growth in disbursements, pressure on NIMs and
sharp rise in NPLs. 1Q FY12 net profit of Rs2.5b grew
21% yoy but declined 19% qoq. Growth in retail
disbursements slowed to 15% yoy in 1Q FY12 from 38% in
4Q FY11 (adjusted for loans bought from LICHF). Loan
growth remained strong at 32% yoy and 3% qoq. Developer
loan disbursals declined 79% yoy as the company continues
to be selective in these loans. Adjusted NIM declined 47bps
qoq and 24bps yoy due to higher cost of funds. Gross NPLs
rose sharply by 84% qoq driven by seasonality in retail
loans. Developer NPLs remain low at Rs80m during the
quarter. Provisioning cover dropped sharply to 59% in 1Q
FY12 from 94% in 4Q FY11. LICHF repaid Rs2.5bn to LIC
in 1Q FY12 towards the portfolio of Rs12.5bn they
purchased from LIC in 4Q11.
Downgrade rating and PT. We lower our PT on LICHF to
Rs210 from Rs235 as we lower our target P/BV multiple to
2x from 2.2x. The lower target P/BV multiple reflects low
visibility on disbursements and deterioration in asset quality.
Earnings outlook. We maintain our loan growth target of
29% yoy for FY12E. We expect spread on home loans of
1.7% in FY12E against 2.2% in FY11 and 1.8% in 1Q FY12.
We expect NIM to decline to 2.94% in FY12E from 3.3% in
FY11. We expect loan loss cover to decline to 68% in
FY12E from 94% in FY11. We have increased gross NPL by
12% in FY12E. While we have retained our disbursement
growth, risks to growth and asset quality have risen.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We downgrade LIC Housing to IN-LINE from
OUTPERFORM due to lack of near-term earnings
triggers and potential risks to retail loan growth and
NPLs in the quarters ahead. Price target lowered to
Rs210 (Rs235 earlier).
1Q FY12 earnings reported today were weak with
slowdown in retail disbursement growth to 15% yoy,
45bps qoq decline in adjusted NIMs, a sharp rise in
NPLs in 1Q partly due to seasonality and the sharp
decline in provisioning cover to 59%.
Management clarified that April was a bad month, which
pulled down overall 1Q disbursal growth
Slow growth in disbursements, pressure on NIMs and
sharp rise in NPLs. 1Q FY12 net profit of Rs2.5b grew
21% yoy but declined 19% qoq. Growth in retail
disbursements slowed to 15% yoy in 1Q FY12 from 38% in
4Q FY11 (adjusted for loans bought from LICHF). Loan
growth remained strong at 32% yoy and 3% qoq. Developer
loan disbursals declined 79% yoy as the company continues
to be selective in these loans. Adjusted NIM declined 47bps
qoq and 24bps yoy due to higher cost of funds. Gross NPLs
rose sharply by 84% qoq driven by seasonality in retail
loans. Developer NPLs remain low at Rs80m during the
quarter. Provisioning cover dropped sharply to 59% in 1Q
FY12 from 94% in 4Q FY11. LICHF repaid Rs2.5bn to LIC
in 1Q FY12 towards the portfolio of Rs12.5bn they
purchased from LIC in 4Q11.
Downgrade rating and PT. We lower our PT on LICHF to
Rs210 from Rs235 as we lower our target P/BV multiple to
2x from 2.2x. The lower target P/BV multiple reflects low
visibility on disbursements and deterioration in asset quality.
Earnings outlook. We maintain our loan growth target of
29% yoy for FY12E. We expect spread on home loans of
1.7% in FY12E against 2.2% in FY11 and 1.8% in 1Q FY12.
We expect NIM to decline to 2.94% in FY12E from 3.3% in
FY11. We expect loan loss cover to decline to 68% in
FY12E from 94% in FY11. We have increased gross NPL by
12% in FY12E. While we have retained our disbursement
growth, risks to growth and asset quality have risen.
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