LIC Housing Finance - Growth back to fore; asset quality improves :: Edelweiss, PDF link

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LIC Housing Finance’s (LICHF) Q2FY15 earnings qualitatively held in good stead with: (1) disbursement growth coming to fore (up over 20% YoY), in turn arresting the slipping loan growth (up 17.3% YoY); and (2) GNPLs coming off in both individual and corporate segments (resolution in one corporate NPL of INR1.3bn). However, PAT growth was lower at 10% YoY to INR3.4n (our estimate INR3.7bn) following increase in provision coverage to 48% (39% in Q1FY15), one time higher advertising expenses and lower other income. While we believe credit cost will be muted given improved visibility on resolution of a few more developer loans, sustainability of growth momentum and upward trajectory in NIMs (which expanded a mere 4bps QoQ to 2.23% despite interest write back of INR240mn on corporate NPL) will be key monitorables. Focus on LAP and easing rate cycle can support growth as well as NIMs. We estimate 14% CAGR in PBT and RoE of 19% over FY15-16.

Asset quality improves; one corporate NPL resolved

LICHF’s GNPLs came off to INR6.1bn (0.63%) versus INR7.5bn (0.8%) in Q1FY15  following resolution of one corporate developer loan (INR1.3bn) with successful auction in September. Further, GNPLs improved in individual segment as well (coming off to 0.38% versus 0.46% a year ago). This, coupled with provision coverage improving to 48% (39.3% in Q1FY15) fed into NNPLs of 0.33% (0.49% in Q1FY15). We anticipate resolution of other developer loans over the next 2-3 quarters. This, along with dual rate loan provisioning release, should keep credit cost in check in FY15.

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