Recommendations » India

LIC Housing Finance Q3FY13 results update

Contributed by Nirmal Bang

LIC Housing Finance (LICHF) reported results below expectations. NIMs stood at 2.09% (flat QoQ) contrary to our expectation of improvement as cost of funds continued to remain higher coupled with interest reversal and lower share of developer loans. Furthermore, increased provisions dented the bottom line performance and PAT declined 22.7% YoY and 2.8% QoQ to Rs 236 cr. Gross NPA increased 30.2% QoQ and 46.4% YoY to Rs 53.8 cr whereas net NPA increased 68% QoQ and 82.0% YoY to Rs 32.8 cr in Q3FY13. Gross NPA and Net NPA ratios stood at 0.74% and 0.45% respectively (0.6% and 0.3% in Q3FY12). Although retail book continued to witness improvement in asset quality, stress was visible in the developer book (3 accounts of Rs 170 cr) which resulted in increase in gross NPA. Going forward, although loan momentum is expected to continue, we remain apprehensive about the improvement in NIMs in the near term. Based on the 9MFY13 performance we have revised our estimates downwards for FY13E. We now expect PAT to grow at a CAGR of 15.2% over FY12-FY14E (21.7% earlier).

LIC Housing has been able to maintain growth momentum in challenging environment and excluding the performance on asset quality in this quarter (which was primarily from the legacy book), the overall track record has been fairly stable on the asset quality front. Driven by strong disbursement and focus on asset quality LIC Housing is well positioned to deliver sustainable and profitable growth ahead albeit at a slower pace than expected earlier.

The stock has corrected significantly post the results and we believe that the downside risk from these levels stands limited. At CMP, the stock is trading at 1.96x FY13E and 1.71x FY14E ABV; 13.12x and 10.31x FY13E and FY14E EPS which we believe are attractive. We recommend to HOLD the stock for a target price of Rs 291 (2.0x FY14E ABV) implying an upside of 17.2% from current levels.

- LICHF loan portfolio continued to remain healthy at 23.8% YoY to Rs 72,704 crs as against 58,707 crs in Q3FY12.

- Non-interest income witnessed decline of 7% QoQ and 2.2% YoY to Rs 50 cr on account of lower fee income resulting from lower sanctions.

- Average yield on funds was flat sequentially at 10.75% in Q3FY13 vs 10.73% in Q2FY13 whereas average cost of funds stood at 9.67% vs 9.66% in Q2FY13 leading to sequentially flat spreads of 1.07% and NIM of 2.1%. However, the incremental spreads have been to the tune of 1.6-1.7% over the last 3 quarters.

- Gross NPA increased 30.2% QoQ and 46.4% YoY to Rs 53.8 cr whereas net NPA increased 68% QoQ and 82.0% YoY to Rs 32.8 cr in Q3FY13.

- The company has deferred the plans of QIP which was expected in H2FY13.

- Management has indicated that LIC may be interested in applying for the banking license as and when opportunity arises.