LIC Housing Finance Ltd. (LICHFL) – Q3FY15 Result Update :: HDFC Securities

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In our Q2FY15 results review dated Oct 28, 2014, we recommended existing investors to buy LICHFL at the then CMP of Rs. 334 and to add it on dips to Rs. 297-315 for our price target of Rs. 359 over the next quarter. Thereafter the stock met our price target on Oct 31, 2014 and subsequently touched a new high of Rs. 505 on Jan 28, 2015. Currently, it is quoting at Rs. 461.5. LICHFL’s Q3FY15 results on Y-o-Y basis were in line with our estimates. Given below is a brief overview of the financial performance & some key highlights that we came across while reviewing the results. Results Update:  Quarterly Review on Y-o-Y basis  LICHFL’s Net Interest income grew by 19.9% to Rs. 5485.6 mn (Q3FY14 Rs. 4576.6 mn). Net interest margins stood at 2.20% in Q3FY15, up marginally by 4 bps from 2.16% in Q3FY14, aided by decline in the borrowing cost. Average cost of funds fell by 25 bps Y-o-Y to 9.49%, while average yields declined by 20 bps Y-o-Y to 10.7%. The spreads improved by 5 bps Y-o-Y to 1.21%.  Disbursements grew by 24.5% Y-o-Y, led by a robust 23.2% growth in the individual disbursements & 50.8% growth in developer loan disbursements. After 6 quarters of subdued growth, disbursements have been growing at 20%+ over the last two quarters, which is encouraging.  Loan book grew by 18% Y-o-Y to Rs. 1019.4 bn, driven by 18.5% growth in retail book. Developer loan book remained flat on Y-o-Y basis, contributing 2.5% to the total loan book.  Asset quality improved with Gross NPAs improving by 24 bps Y-o-Y to 0.57% in Q3FY15, led by retail GNPA. Provision coverage ratio (excluding teaser rate provisions and standard assets) stood at 45.4% in Q3FY15 vs. 37.3% in Q3FY14. However provision cover including teaser loan provision & standard assets provision stood at 117.8% of Gross NPA. Net NPAs improved from 0.51% in Q3FY14 to 0.31% in Q3FY15.  Pre-provisioning profit increased by 17.7% Y-o-Y, lower than growth in NII, impacted by marginal growth in non-interest income and higher growth in the operating expenses (up 20.4% Y-o-Y, led by 51.3% in Staff cost (due to downward revision of discount rates)). PBT grew at slower rate by 14.3%, led by provision write-offs (net) of Rs. 68 mn (compared to provision write-back (net) of Rs. 74.5 mn in Q3FY14.  The effective tax rate on PBT increased by 555 bps Y-o-Y to 34% on account of DTL provisions of Rs. 340 mn. New regulations by NHB (from Q1FY15) requires HFCs to create deferred tax liability (DTL) on the special reserve under section 36 (1)(viii) of the Income Tax Act, 1961 similar to banks. The Company has adjusted the opening balance of reserves for creation of DTL on the Special Reserve as at April 01, 2014 created and in respect of amount appropriated to Special Reserve

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011282