LIC Housing Finance 3QFY2014 performance highlights and results update
January 21, 2014, Tuesday, 06:28 GMT | 01:28 EST | 10:58 IST | 13:28 SGT
LIC Housing Finance (LICHF) reported a healthy operating profit growth of 27.4% yoy for 3QFY2014. Aided by a healthy loan book growth of 18.9% yoy, the company reported a healthy NII growth of 22.3% yoy. In-line with the trends witnessed over the last few quarters, Opex growth remained moderate at 8.9% yoy. A chunky slippage in developer book resulted in sequential deterioration in asset quality (absolute Gross NPA up 15.2% qoq). Overall provision expenses came in negative at Rs.7cr, as the company reversed provisions amounting to Rs.42cr on its teaser loan book, which aided the company to report much higher earnings growth of 38.3% yoy.
Chunky developer NPA affects margins and asset quality performance: LICHF’s loan book grew at a healthy pace of 18.9% yoy during 3QFY2014, largely aided by individual loan book growth of 20.0% yoy. Developer loan disbursements witnessed marginal sequential improvement and were Rs.297cr during the quarter as compared to Rs.265cr in 2QFY2014. Consequently, loans to the developer segment increased 2.8% qoq (though were lower by 8.4% yoy) and share of developer loans was stable qoq at 3.0%. Going forward, the Management targets a total loan book growth of 20% yoy for FY2014 and total developer loan disbursements at around Rs.500cr for 4QFY2014. During 3QFY2014, the margins for the company declined 6bp sequentially, largely on account of interest reversals amounting to Rs.9cr on fresh NPAs worth around Rs.130cr in the developer loan book. The company witnessed sequential deterioration on the asset quality front, as absolute Gross and Net NPA levels, increased 15.2% and 21.3% qoq, respectively, largely on back of the same chunky slippage in the developer segment. In the Individual segment, Gross NPA improved sequentially from 0.46% to 0.40%. PCR dipped 320bp sequentially to 37.2%, as of 3QFY2014. Of the developer loan book NPAs totaling Rs.365cr (4 accounts), the Management is hopeful of recovering a chunk of it during the next two-three quarters. As per the Management no major delinquencies are expected here on in the developer loan book.
Outlook and valuation: For companies like LICHF, funding environment has eased considerably from the tough times witnessed in 2QFY2014, while retail housing loan growth and outlook remains reasonably good. We expect the company to post a healthy loan book CAGR of ~20% over FY2013-15E, which is likely to reflect in an earnings CAGR of ~22%, over the same period. The stock currently trades at 1.3x FY2015E ABV. We recommend a Buy rating on the stock, with a target price of Rs.253.