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LIC Housing Finance’s (LICHFL) Q2FY12 PAT of INR984mn (down 58% YoY)
was primarily dented by provisioning of INR2bn (due to revised norms
mandated by NHB in August). Even after adjusting for one‐time
provisioning, PAT was below consensus estimate as NIMs dipped 34bps
(as against expectation of 10‐15bps). On the positive side, individual
disbursement growth was sustained; traction was gained in developer
loans; NPLs came off QoQ. We maintain ‘HOLD’ with a TP of INR275.
NIMs came off 34bps to 2.45%; close to bottoming out
NIMs have come off 100bps in the past two quarters to 2.45%, largely unwinding
previous six quarters’ benefit. Despite having raised lending rates by 25bps each in
April and July 2011, yields improved only marginally (by 8bps) since Q4FY11 as special
scheme loans constituted ~40% (not due for repricing due to fixed rate nature),
coupled with slow build up in developer loans. On the other hand, funding cost
increased 125bps as INR50bn of liabilities matured in H1FY12. The company has raised
lending rates by 40‐50bps since October 2011 and we expect NIMs to bottom out.
Revised provisioning norms dent earnings
In August 2011, NHB mandated standard asset provisioning of 40bps alongwith higher
provisioning for non‐standard loans. In this respect, LICHFL provided INR2bn in
Q2FY12. Management indicated that it has not utilized excess provisioning of
INR1.12bn (contrary to its earlier guidance). Out of INR2.05bn, we believe ~INR1.6bn
was provided towards standard assets (of ~INR400bn excluding INR120bn Fix‐O‐Floaty
loans and INR40bn developer loans) and INR450mn towards revised provisioning on
INR3.0‐3.3bn of substandard/doubtful loans. Management stated that “Advantage 5”
loans (INR100bn) are not yet categorized as teaser loans. We are increasing our credit
cost estimate to factor in 40bps standard asset provisioning (against 25bps earlier).
Outlook and valuations: NIMs bottoming out; maintain ‘HOLD’
Though margins have come off 100bps in the past two quarters, we believe they are
close to bottoming out (40‐50bps increase in lending rates in October to offset cost
pressures). Growth trajectory is expected to sustain in individual as well as corporate
segments. It is evaluating raising equity in H2FY12 (can act as a trigger being book
value accretive). The stock is currently trading at 1.9x FY13E book and 8.6x FY13E
earnings. We maintain ‘HOLD/ Sector Performer’ recommendation/rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
LIC Housing Finance’s (LICHFL) Q2FY12 PAT of INR984mn (down 58% YoY)
was primarily dented by provisioning of INR2bn (due to revised norms
mandated by NHB in August). Even after adjusting for one‐time
provisioning, PAT was below consensus estimate as NIMs dipped 34bps
(as against expectation of 10‐15bps). On the positive side, individual
disbursement growth was sustained; traction was gained in developer
loans; NPLs came off QoQ. We maintain ‘HOLD’ with a TP of INR275.
NIMs came off 34bps to 2.45%; close to bottoming out
NIMs have come off 100bps in the past two quarters to 2.45%, largely unwinding
previous six quarters’ benefit. Despite having raised lending rates by 25bps each in
April and July 2011, yields improved only marginally (by 8bps) since Q4FY11 as special
scheme loans constituted ~40% (not due for repricing due to fixed rate nature),
coupled with slow build up in developer loans. On the other hand, funding cost
increased 125bps as INR50bn of liabilities matured in H1FY12. The company has raised
lending rates by 40‐50bps since October 2011 and we expect NIMs to bottom out.
Revised provisioning norms dent earnings
In August 2011, NHB mandated standard asset provisioning of 40bps alongwith higher
provisioning for non‐standard loans. In this respect, LICHFL provided INR2bn in
Q2FY12. Management indicated that it has not utilized excess provisioning of
INR1.12bn (contrary to its earlier guidance). Out of INR2.05bn, we believe ~INR1.6bn
was provided towards standard assets (of ~INR400bn excluding INR120bn Fix‐O‐Floaty
loans and INR40bn developer loans) and INR450mn towards revised provisioning on
INR3.0‐3.3bn of substandard/doubtful loans. Management stated that “Advantage 5”
loans (INR100bn) are not yet categorized as teaser loans. We are increasing our credit
cost estimate to factor in 40bps standard asset provisioning (against 25bps earlier).
Outlook and valuations: NIMs bottoming out; maintain ‘HOLD’
Though margins have come off 100bps in the past two quarters, we believe they are
close to bottoming out (40‐50bps increase in lending rates in October to offset cost
pressures). Growth trajectory is expected to sustain in individual as well as corporate
segments. It is evaluating raising equity in H2FY12 (can act as a trigger being book
value accretive). The stock is currently trading at 1.9x FY13E book and 8.6x FY13E
earnings. We maintain ‘HOLD/ Sector Performer’ recommendation/rating.
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