LIC Housing Finance :: PAT below our estimate on lower margins ::Nomura research

LICHF reported a PAT of INR2.43bn versus our estimate of
INR2.72bn (street est. of INR2.6bn), largely driven by lower net
interest income.

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Key 2QFY13 highlights:
 Loan growth of 23.2% was in line with our expectation of 23.7%,
largely due to retail loans that grew 27% y/y (sequential increase of
6%) while the higher yielding developer/project loans declined 32.6%
y/y (sequential decline of 12.5%). The developer/project loans as a
proportion of total loans has declined from 4.63% in 1QFY13 to 3.85%
in 2QFY13.
 Average yield on funds increased from 10.68% in 1QFY13 to 10.73%
in the current quarter while average cost of funds increased from
9.58% in 1QFY13 to 9.66% in 2QFY13. This led to a sequential
compression in spread of 3bps to 1.07%. NIM for 2QFY13 was 2.1%
versus 2.18% in 1QFY13. The decline in the share of developer loans
coupled with a flat cost of funds led to this sequential spread
compression of 3bps and a NIM compression of 8bps.
 Project loan sanctions were INR5.24bn versus INR4.07bn in 1QFY13
while disbursements were INR1.21bn (INR3.21bn in 1QFY13).
Individual loan sanctions grew 15% y/y and disbursements grew 21%
y/y.
 Non-interest income was in line with our estimate at INR5.38bn, a
QoQ increase of 9% (YoY decline of 6.2%).
 Operating expenses and employee costs were 13.1% higher than our
expectations. Cost-income ratio inched up 234bps y/y to 16.7% (13%
in 1QFY13).
 GNPLs declined 12% sequentially to INR4.1bn from INR4.7bn. GNPL
and NNPL ratio came in at 0.60% and 0.28% (versus 0.71% & 0.38%
in 1QFY13). Provisions were below our estimate at INR69mn as the
company largely made only standard asset provisions during the
quarter. Provision cover (excluding teaser rate provisions) has
improved to 52.8% from 46.9% in 1QFY13.
 Key issue to watch for in the management discussion tomorrow - the
guidance for the project loan book and, consequently, the trajectory for
margins.
We will revisit our estimates post LICHF’s earnings call scheduled for
tomorrow.
Valuation: LICHF currently trades at 1.8x our FY13F ABV of
INR131.9 and 10x our FY13F EPS of INR24.4. Our TP of INR295
implies multiples of 2.2x our FY13F ABV and 12.9x our FY13F EPS.