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LIC Housing Finance
A poor quarter, headwinds remain
Event
LIC Housing reported PAT of Rs2.56bn, 13% below our estimate and 5%
below Bloomberg consensus. We maintain Underperform with a TP of Rs190.
Impact
Margins drop sharply – pressure not gone. Margins took a big hit, dropping
67bp QoQ to 2.78%. The key reason is that incremental retail lending is being
done at sharply reduced spreads. The new ‘Freedom’ loan product is coming
in at ~10%, for Rs3m and below ticket size, which is equal to the wholesale
borrowing costs. Cost of funds for LICHF was up 113bp QoQ to 9.1%, while
yield on assets was up only 18bp QoQ to 10.8%.
We believe that funding costs are likely to remain on the higher side,
while competition is also likely to keep a lid on retail home loan rates.
Accordingly, NIMs should remain under pressure.
Loans to developers earn ~450bp more than retail loans, and while
management is looking to do more disbursals there, the proportion of
developer loans to overall loans is likely to remain small (7.6% now).
Loan growth lukewarm largely due to shrinking developer portfolio. Loan
book grew 3% QoQ (32% YoY), largely due to 8% QoQ shrinkage in
developer loans. Retail loans grew by a healthier 5% QoQ and 36% YoY.
Management is looking to disburse more developer loans, where disbursal
was only Rs770m or 2% of total loans disbursed this quarter. We expect fullyear
loan growth of ~29% YoY.
Sharp jump in NPLs. NPLs were up 84% QoQ. Part of this is seasonal, with
NPLs in the past also increasing in 1Q before slowly coming down through the
year, with 4Q showing highest recovery/upgradations. But even allowing for
the seasonality, the jump was a negative surprise. There was no one-off large
NPL, with all NPLs coming from the retail portfolio. As a result, provisioning of
Rs330m was a negative surprise. We believe the company will have to
progressively increase its NPL provisioning as delinquencies rise.
There was no standard asset provisioning done in the quarter for its erstwhile
Advantage -5 loan scheme – a possible one-time hit of Rs1.8bn.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs190.00 based on a Gordon Growth methodology.
Catalyst: Continued pressure on margins
Action and recommendation
We believe earnings continue to face headwinds. There is also possible risk
of equity dilution and further standard asset provisioning hits. Maintain
Underperform.
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LIC Housing Finance
A poor quarter, headwinds remain
Event
LIC Housing reported PAT of Rs2.56bn, 13% below our estimate and 5%
below Bloomberg consensus. We maintain Underperform with a TP of Rs190.
Impact
Margins drop sharply – pressure not gone. Margins took a big hit, dropping
67bp QoQ to 2.78%. The key reason is that incremental retail lending is being
done at sharply reduced spreads. The new ‘Freedom’ loan product is coming
in at ~10%, for Rs3m and below ticket size, which is equal to the wholesale
borrowing costs. Cost of funds for LICHF was up 113bp QoQ to 9.1%, while
yield on assets was up only 18bp QoQ to 10.8%.
We believe that funding costs are likely to remain on the higher side,
while competition is also likely to keep a lid on retail home loan rates.
Accordingly, NIMs should remain under pressure.
Loans to developers earn ~450bp more than retail loans, and while
management is looking to do more disbursals there, the proportion of
developer loans to overall loans is likely to remain small (7.6% now).
Loan growth lukewarm largely due to shrinking developer portfolio. Loan
book grew 3% QoQ (32% YoY), largely due to 8% QoQ shrinkage in
developer loans. Retail loans grew by a healthier 5% QoQ and 36% YoY.
Management is looking to disburse more developer loans, where disbursal
was only Rs770m or 2% of total loans disbursed this quarter. We expect fullyear
loan growth of ~29% YoY.
Sharp jump in NPLs. NPLs were up 84% QoQ. Part of this is seasonal, with
NPLs in the past also increasing in 1Q before slowly coming down through the
year, with 4Q showing highest recovery/upgradations. But even allowing for
the seasonality, the jump was a negative surprise. There was no one-off large
NPL, with all NPLs coming from the retail portfolio. As a result, provisioning of
Rs330m was a negative surprise. We believe the company will have to
progressively increase its NPL provisioning as delinquencies rise.
There was no standard asset provisioning done in the quarter for its erstwhile
Advantage -5 loan scheme – a possible one-time hit of Rs1.8bn.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs190.00 based on a Gordon Growth methodology.
Catalyst: Continued pressure on margins
Action and recommendation
We believe earnings continue to face headwinds. There is also possible risk
of equity dilution and further standard asset provisioning hits. Maintain
Underperform.
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