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LIC Housing 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, LIC Housing posted net profit growth of 43.2% yoy to Rs.306cr, above our estimates mostly due to reversal of excess provisions (~Rs.100cr) that the company was carrying on its balance sheet. We recommend an Accumulate rating on the stock.

NIM disappoints, as disbursements to the developer segment remain sluggish: For 3QFY2012, LICHF’s loan book grew strongly by 26.6% yoy (4.7% qoq) to Rs.58,707cr. Loan growth was driven by loans to the individual segment, which grew by 32.9% yoy to Rs.55,171cr, while loans to the developer segment declined by 27.2% yoy to Rs.3,536cr (6.0% of overall loan book). Disbursement growth to the individual segment (Rs.4,568cr) was moderate during 3QFY2012 at 8.8% yoy, however disbursements to the developer segment remained sluggish at Rs.154cr, declining by 61.5% yoy. LICHF’s loan portfolio share to developers, which are generally higher yielding, has been on a declining trend since the last 2-3 quarters, leading to slower rise in yield on assets for the company. The company’s cost of funds also rose sharply by 73bp qoq (226bp yoy) due to higher interest expenses, leading to a contraction in reported NIM by 18bp qoq (87bp yoy). However, management has guided for improvement in NIM for 4QFY2012, as the company plans to disburse ~Rs.1,000cr of developer loans in the next quarter. LICHF had accumulated ~Rs.100cr of extra provisioning on its balance sheet, as it had made the entire standard provisioning of Rs.160cr (40bp on Rs.40,000cr) on individual loans in 2QFY2012, despite already providing 10-15bp. Also, the company was providing more on developer loans (90bp) than required by NHB (40bp). The company chose to reverse these provisions (netting for provisioning for NPA) during 3QFY2012, leading to negative provisioning expenses of Rs.80cr during the quarter.

Outlook and valuation: At the CMP, the stock is trading at a P/ABV multiple of 2.0x FY2013E ABV of Rs.129.3cr. Historically, the stock has traded at 0.8-2.1x one-year forward P/ABV multiple, with a five-year median of 1.2x, but it has been rerated over the past three years to 1.9x average. Although loan growth is expected to slow down to 24% for FY2012 and 21% for FY2013 (from 34.2% in FY2011) and spreads are likely to be lower by ~84bp in FY2012 compared to FY2011, considering that interest rates have peaked and the company has healthy growth prospects, we recommend Accumulate with a target price of Rs.291.