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Near-term operating environment likely to remain challenging
We expect the near-term operating environment to remain challenging for LICHF,
as NIM is likely to decline further. While retail loan momentum is stable, the
company is cautious on lending to developers (we estimate loan growth of ~25%
for FY12). Stable asset quality is a key positive, in our view, and a likely reason for
strong outperformance of the stock. LICHF is currently trading at 1.8x FY13E P/B.
Given near-term NIM concerns and a likely slower growth environment, we
believe the stock is fairly valued at current levels. Maintaining Hold.
Near-term pressure on NIM; no concerns yet on asset quality
2QFY12 NIM for LICHF dipped 33bps QoQ, to 2.45%. We expect NIMs to remain
under pressure in the near term, as costs of funds have increased and are difficult
to pass on fully to the lending side (50% of loan book fixed for next 9-12 months).
Also, the declining share of high-yielding developer loans continues to keep overall
yields under pressure. There are no concerns yet on asset quality – neither retail
nor developer – but LICHF continues to monitor its developer loan book closely.
FY12E loan growth likely to be ~25%, driven largely by retail
Individual loan growth is holding up well for LICHF. While there is some demand
moderation in the larger cities like Mumbai and Delhi, demand in other centers like
Chennai, Bangalore, Pune, Kolkata, etc., remains strong. Loans to developers are
still shrinking, as management is not finding enough credible opportunities. Most
developers are seeking term loans, while LICHF is comfortable only with projectbased
lending, where cash flows are escrowed. LICHF expects some uptick in
developer loans in 4QFY12. We estimate FY12 loan growth of ~25%.
Two-stage residual income valuation; risks
We lower our near-term FY12/FY13 net profit estimates by 27%/23% on account
of our lower estimates for loan growth and NIM. Since we value LICHF on a twostage
residual income model (details on page 4), estimated over 10 years, we
reduce our target price by ~5%, to INR195. Key upside risk: improving system
liquidity, leading to lower cost of funds, and hence higher NIM. Key downside risk:
high slippages from the developer loan book.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near-term operating environment likely to remain challenging
We expect the near-term operating environment to remain challenging for LICHF,
as NIM is likely to decline further. While retail loan momentum is stable, the
company is cautious on lending to developers (we estimate loan growth of ~25%
for FY12). Stable asset quality is a key positive, in our view, and a likely reason for
strong outperformance of the stock. LICHF is currently trading at 1.8x FY13E P/B.
Given near-term NIM concerns and a likely slower growth environment, we
believe the stock is fairly valued at current levels. Maintaining Hold.
Near-term pressure on NIM; no concerns yet on asset quality
2QFY12 NIM for LICHF dipped 33bps QoQ, to 2.45%. We expect NIMs to remain
under pressure in the near term, as costs of funds have increased and are difficult
to pass on fully to the lending side (50% of loan book fixed for next 9-12 months).
Also, the declining share of high-yielding developer loans continues to keep overall
yields under pressure. There are no concerns yet on asset quality – neither retail
nor developer – but LICHF continues to monitor its developer loan book closely.
FY12E loan growth likely to be ~25%, driven largely by retail
Individual loan growth is holding up well for LICHF. While there is some demand
moderation in the larger cities like Mumbai and Delhi, demand in other centers like
Chennai, Bangalore, Pune, Kolkata, etc., remains strong. Loans to developers are
still shrinking, as management is not finding enough credible opportunities. Most
developers are seeking term loans, while LICHF is comfortable only with projectbased
lending, where cash flows are escrowed. LICHF expects some uptick in
developer loans in 4QFY12. We estimate FY12 loan growth of ~25%.
Two-stage residual income valuation; risks
We lower our near-term FY12/FY13 net profit estimates by 27%/23% on account
of our lower estimates for loan growth and NIM. Since we value LICHF on a twostage
residual income model (details on page 4), estimated over 10 years, we
reduce our target price by ~5%, to INR195. Key upside risk: improving system
liquidity, leading to lower cost of funds, and hence higher NIM. Key downside risk:
high slippages from the developer loan book.
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