LIC Housing Finance: Strong growth, expanding margins :: Kotak Sec,report

Please Share::

Strong growth, expanding margins. LICHF’s 3QFY15 operating performance was
strong with 23% yoy growth in individual loan disbursements driving 19% yoy growth
in loans. Incremental spreads expanded by 20 bps qoq as bond yields declined by 80
bps between September and December 2014. We believe LICHF is best placed to
capitalize on the strong mortgage momentum and an imminent decline in interest
rates; we expect LICHF to deliver strong earnings growth of ~20% CAGR and RoE of
20% in the medium term. Recovery in developer NPLs will reduce credit costs. We
maintain our ADD rating with a target price of `470 (`450 earlier).

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Strong NII growth at LICHF
LIC Housing Finance (LICHF) reported 16% yoy growth in 3QFY15 PAT (before DTL) to `3.8 bn,
3% below our estimates. NII growth was strong at 20% due to strong loan growth of 18%
yoy. NIM declined 3 bps qoq to 2.2%. Adjusting for recovery in interest income in 2QFY15, NIM
was higher, by 6 bps. Operating expenses grew 45% yoy, which pulled down overall earnings
growth to 16% due to provisions for higher pension liabilities. Gross NPLs were stable at 60 bps
of loans but are expected to decline over next few quarters on recovery in a developer account.
Business momentum remains strong
LICHF reported 23% yoy growth in disbursements in the individual segment to `72 bn (`70 bn
in 2QFY15) driving 19% yoy growth in loan book in this segment. After a sluggish performance
in FY2014, LICHF’s disbursements gradually increased in FY2015YTD. Disbursements to
developers were low at `4 bn. We forecast strong disbursement growth of 20% CAGR over
FY2014-17.
Retain ADD rating with target price of `470 (`450 earlier)
We retain our positive view on the stock. LICHF’s strong growth (23% yoy disbursement
growth in the individual segment during the period) and NIM expansion would be key trends to
monitor. LICHF is a strong long-term compounding story and a beneficiary of a decline in
interest rates. We retain our ADD rating with target price of `470 (`450 earlier). At our target
price, LICHF will trade at 2.3X book FY2016E.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily15012015bc.pdf