LIC Housing Finance :: Earnings below expectations; NPAs rise on project loans ::JPMorgan

LICHF’s 3Q PAT of Rs2.4B (-23% y/y, -3 % Q/Q) was lower than
expected on lower NIMs. Higher NPA from developer loans hit credit
costs and yields (on interest reversals) a bit. Adjusting for this, margins
would have improved sequentially. Overall loan growth remained strong at
24%, and the incremental lending spread for 9M FY13 at 1.79% was far
better than the spread on book at 1.07%, suggesting potential improvement
ahead. We stay Overweight and maintain our price target of Rs320 as we
extend our timeframe to Mar-14 from Mar-13.
 Breakdown of margins. Individual loan yield at 10.75% improved only
2bp Q/Q despite some resets (Rs 2.5B) expected this quarter. This was
the key negative surprise in the results. Developer loan yield also fell by
130bp Q/Q on account of interest income write-off on higher NPAs
(costing about 5bp on yield as well). Cost of funds as expected did not
see an improvement (9.67%) given the roll-off of cheaper debt raised
over the last few years.
 Loan growth holds up; project loans also see a sharp uptick. Overall
loan growth remained strong, coming in at 24% Y/Y, with individual
loan growth better at 27% Y/Y. Individual disbursement growth for the
quarter was also healthy at 21% Y/Y (9M – 25% Y/Y). Project loan
disbursements (at Rs5B) saw a sharp sequential pick-up in the Dec-Q.
Overall, developer loan share at 4% was at its lowest point and should
pick up from here given an improvement in approvals pace in the key
markets of Mumbai/Delhi.
 Asset quality. GNPA at 0.74% and NNPA at 0.45% were up 11bp Y/Y
and 14bp Y/Y respectively. Management indicated that while the retail
asset quality has held up well, the developer portfolio has shown some
stress. We will await the details on these NPAs and the company’s
outlook on these accounts. We note that other Housing Finance NBFCs
have not reported any stress on project loans.
 Conference call on Friday. Key questions for the call: 1. NIM
expectations. 2. Outlook on the growth of developer loans. 3.
Explanations for a fall in processing fees. 4. Timeline on capital raising.

�� -->