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LIC Housing Finance Q1FY15 results update

August 1, 2014, Friday, 07:06 GMT | 02:06 EST | 10:36 IST | 13:06 SGT
Contributed by Nirmal Bang

LIC Housing Finance (LICHF) reported results below expectations on account of lower than expected Net Interest Income and higher than expected deferred tax liability. Loan growth moderated and stood at 16.8% YoY as compared to historical run rate of above 20% which was in line with the cautious strategy adopted by the management to maintain the asset quality.

Margins declined both QoQ and YoY led by higher cost of funds due to high dependence on bank borrowings and limited access to bond market. Provision stood at Rs 9.2 cr despite including write back of Rs 44 cr due to higher provisions on NPA and developer loan book.

Retail book NPA witnessed improvement on YoY basis while corporate book witnessed marginal increase though it did not witness any big ticket slippages. Of the current substandard category, management is hopeful of recovery in one of the account by Q2FY15E.

- Management intends to grow at around 20% for FY15E with focus on LAP. LAP currently contributes 3.8% of the total loan book which is expected to increase upto 5%. We have built in loan growth of 18.1% for FY15E.

- We expect margins to witness marginal improvement in FY15E to 2.3% from current levels of 2.19% led by repricing of loan book, increasing share of higher yielding book (LAP and developer loan) and lower cost of funds (reducing bank borrowings).

- Asset quality concerns seem to have subsided and we believe that recoveries in the developer loan book in H2FY15E should lead to further improvement in the overall asset quality.

- Tax rate for the quarter increased to 34% (from 27% in the past) as the company made provisions on deferred tax liability of Rs 32 cr for benefits claimed u/s 36 (i) (viiii) of the Income Tax Act.

- LICHF’s borrowing profile stands at: Banks -25.5% @ 10.7%; NHB Refinance – 4.1% @ 9.3%; NCDs- 64.5% @ 9.44%; Retail deposits – 2.2% @ 9.7% and Sub-ordinated debt – 3.6% @8-9%.

Volume growth continues to remain good; however growth in developer book still remains a challenge. Margin improvement is likely to come from increasing share of project loans and LAP book. LICHF has reported broadly stable performance in the current quarter. Scope of margin expansion, maintaining operational efficiency, stable asset quality, adequate capital adequacy ratio (Tier I @ 12.2%) continue to remain the key driver for the company’s performance in the long term. We have broadly maintained our estimates; however our PAT estimates stands reduced after taking into account higher tax rates for DTL. We now expect 11.2% CAGR in PAT for FY14-FY16E with RoA of 1.4% and RoE of 17.4% for FY16E. At CMP, the stock is trading at 1.76x FY15E and 1.51x FY16E ABV; 10.49x and 8.99x FY15E and FY16E EPS. We maintain our HOLD rating on the stock with a target price of Rs 335 (1.75x FY16E ABV); an upside of 15.6% from current levels.