Improving margin, growth trajectory positive… • LICHF :: ICICI Securities, PDF link

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Improving margin, growth trajectory positive…
• LICHF’s Q2FY15 PAT was in line with estimates at | 341 crore (up
10% YoY, 6% QoQ) supported by healthy NII traction of 17.3% YoY
to | 532 crore & provision reversal of | 19 crore
• An account of ~| 130 crore in the developer segment was recovered
in Q2, which enabled interest reversal of | 24 crore and provision
reversal of | 20 crore
• NIMs improved 4 bps QoQ to 2.23%. GNPA declined 19% QoQ to
| 611 crore. Credit growth in retail loans stayed healthy at 18% YoY
to | 95130 crore
Rapid increase in assets seen; expect traction to stay ahead of industry
LICHF’s advances currently stand at | 97528 crore, which makes it the
second largest housing finance company (HFC) in India after HDFC Ltd.
Including banks, it comes at the third position after HDFC & SBI with each
having 15% market share. Since FY07, we observe that LICHF has
increased its loan book at an aggressive pace of >25% CAGR vs. industry
growth of ~15-17%. Consequently, LICHF’s market share increased and
has almost doubled in the last seven years to ~10% now. The growth has
been predominantly led by the individual loan book (retail book), which
accounts for ~97% of the total book. Developer portfolio (high yielding)
has shrunk to 3% from 10% as on FY10. The management has guided for
loan growth of ~20% ahead. We expect loan book CAGR of 19% over
FY14-16E to | 129619 crore, again mainly led by the retail portfolio.
However, we also factor in a rise in proportion of developer loans to 4.5%
by FY16E from ~2.6% currently.
Margins compressed in past few years; expect to improve gradually
As we said, LICHF increased its loan book at a rapid pace, which enabled
it to raise its market share. However, it also had to witness its margins
declining to ~2.2% from >3% as on FY10. LICHF’s lending rates were
one of the lowest in the industry, in order to be competitive and it had
launched products like Fix-O-Floaty. Further, elevated interest rates for a
prolonged period & dwindling high yielding developer portfolio kept
margins under pressure. Management guidance of improvement in NIMs
in the last few quarters has not crystallised. However, at 2.2%, we believe
margins have bottomed out & should see some improvement in FY15E
with a major increase by FY16E to 2.4%. An improving developer
portfolio, decline in wholesale rates & conversion of teaser loans to higher
rate floating loans would be catalysts for an increase in NIMs.
Asset quality steady; no major glitch expected
Asset quality for HFCs, in general, & LICHF, in particular, has stayed
benign. This is due to a bulk of the exposure to the salaried class, better
underwriting, lower LTV & increasing property prices. GNPA ratio for the
industry is ~0.8% & LICHF’s FY14 ratio is below industry levels at 0.67%
with absolute GNPA at | 609 crore. We expect GNPA to increase to | 974
crore by FY16E with ratio rising to 0.8%, which remains acceptable.
Margin improvement remains key for re-rating; Recommend BUY
Management has guided for loan traction of 20% ahead. We have
factored in 19% CAGR in credit over FY14-16E vs. 17% earlier. We have
raised our FY15E NIM estimate to 2.35% from 2.3% earlier owing to
declining trajectory in money market rates. We believe NIM improvement
is the key catalyst for the stock to get re-rated higher. Accordingly, our
PAT estimates increases to 19.7% CAGR to | 1887 crore over FY14-16E
from 17.5% earlier. Recommend Buy with TP of | 370 (1.9x FY16E ABV)

LINK
http://content.icicidirect.com/mailimages/IDirect_LICHousing_Q2FY15.pdf