03 March 2012

LIC Housing Finance - Near term slip, medium term fillip; visit note; Hold ::Edelweiss PDF link

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LIC Housing Finance (LICHF IN, INR 254, Hold)
We met the LIC Housing Finance (LICHFL) management for its view on NHB’s clarification on the uniformity in lending rates circular. Since clarification makes uniformity mandatory for fresh disbursements (post October 19, 2011) and does not apply to special schemes, the management is awaiting the clarification for existing borrowers which is still under examination by NHB. We also wanted to understand if the company is on course to achieve its aggressive Q4FY12 guidance on margins (3%) and corporate developers disbursements (INR10bn). LICHFL’s NIMs are likely to settle much lower than the guided range due to rise in wholesale rate in Q4FY12 plus slower build up of high yielding corporate developer loan book. We maintain ‘HOLD’ with TP of INR275.

NIMs to settle below guided range
LICHFL’s NIMs have dipped 118bps in 9mFY12 to 2.27%, the lowest in the past four-five years. Management has guided aggressively for 3% NIMs in Q4FY12 on back of higher developer loan disbursements and interest rates easing off. However, system-wide liquidity has been tight and wholesale rates have jumped 30-40bps in Q4FY12. This will offset the gains accruing historically in Q4 from superior asset quality. Moreover, yields are likely to remain flat as lending rates have remained stable for individual borrowers and there has not been much build up in high yielding developer loan book (proportion down from 11% to 6% in Q3FY12). We expect NIMs to gain momentum from Q2FY13 as: (1) the interest rate cycle peaks out; (2) INR120bn of Fix-O-Floaty loans gets repriced upwards w.e.f. July 1, 2012; and (3) benefit of equity infusion flows through.
Outlook and valuations: NIMs to surge in Q2FY13; maintain ‘HOLD’
Despite the expectation of near-term miss on guidance, we are positive of fundamental improvement in earnings Q2FY13 onwards as NIMs would post significant uptick due to benefit of repricing, equity infusion and higher developer loan build up. We expect earnings to grow 24% CAGR over FY12-14E. The stock is currently trading at 2.1x FY13E book and 10x FY13E earnings. We maintain HOLD/ Sector Performer recommendation/rating.

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