LIC Housing Finance - Growth Resurfaces; NIMs Stable; Result Update Q3FY15 :: Edelweiss report

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LIC Housing Finance’s (LICHF) Q3FY15 PAT at INR3.4bn was marginally below our INR3.5bn estimate. However, results qualitatively held in good stead with healthy disbursement growth (aided by continued traction of >20% in individual segment and strong uptick in developer loans) feeding into improved loan growth. NIMs, though optically appears lower QoQ at 2.2%, it was more a function of interest write-back in Q2FY15 which aided yields, adjusted for which NIMs would have been higher sequentially. Given sustainability in growth momentum (refer our note, “Making inroads in unchartered territory”), visible triggers for improvement in NIMs (incremental business at higher-than-book spread, strong pipeline of developer loans, etc) and improved visibility on resolution of few more developer loans, we estimate 19% CAGR in PBT over FY14-17 leading to 20% RoE . We introduce FY17 estimates and roll forward our valuations to 2.5x FY17E P/BV with TP of INR525.

Disbursement traction continues, developer loans come to fore

Disbursements maintined healthy pace for second consecutive quarter (up 25% YoY). While individual segment maintained pace of 20% plus growth, incremental delta came from higher disbusements to corporate developer segment (INR4.5bn versus INR2.3bn in H1FY15). Management highlighted healthy developer pipeline is in place and expects addition of another INR7-8bn in Q4FY15. On individual front, along with structural levers, LAP will also be a incremental contributor (currently contributes ~7% to disbursements with target to take it to ~10%). While spreads on salaried class will be thin, incremental growth in LAP, developer loans along with lower funding cost will support NIMs. This wil help the company maintain healhy profitabilitity.

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https://www.edelweiss.in/research/LIC-Housing-Finance--Growth-Resurfaces;-NIMs-Stable;-Result-Update-Q3FY15/28026.html