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LIC Housing Finance Q3FY14 results update

January 20, 2014, Monday, 06:47 GMT | 01:47 EST | 11:17 IST | 13:47 SGT
Contributed by Nirmal Bang


LIC Housing Finance (LICHF) reported results marginally below expectations. Loan growth moderated and stood at 18.9% YoY as compared to historical run rate of above 20%. This is conscious decision taken by the management in order to maintain the asset quality of the book and protect margins. Growth was driven by retail book while developer book continued to decline.
 
Margins were lower sequentially by 6 bps; however improved 7 bps YoY from 2.09% to 2.16%. Higher cost of funds impacted margins on QoQ basis. There was a net write back of Rs 7.5 cr in Q3FY14 as against provisions of Rs 31.9 cr in Q3FY13 and Rs 34.1 cr in Q2FY14. Provision worth Rs 42 cr was released on teaser loan portfolio which led to 38% YoY growth in PAT.
 
Asset quality deteriorated further with one large developer account worth Rs 132 cr in the developer loan segment slipped into NPA. Asset quality in the retail loan book improved both QoQ and YoY.
 
- Management intends to grow at around 20% for FY14E with focus on LAP.
 
- Disbursement in developer loan segment stood at Rs 297 cr and management expects it to remain broadly at similar levels for Q4F14E.
 
- LICHF has witnessed stable repayment ratio at 13-14% on overall basis.
 
- Management targets to end FY14E with NIMs of 2.2%-2.3%. However, with slowing growth and lower share of developer book we do not expect a significant improvement and expect NIMs to be at 2.1% for FY14E.
 
- Asset quality concerns continue as developer loan book is facing stress with about 4 large accounts in the NPA category. However, as per management, LICHF holds collateral of more than 2x on all these NPA accounts and is hopeful of recovery in the next 2 quarter. Moreover, majority of stress in the developer book has been taken into account and things should improve from here on.
 
- Provisions worth Rs 140 cr are slated to be released in the next 2-3 quarter which will boost the bottom line growth.
 
- Borrowing profile stands at: Banks -27% @ 10.7%; NHB Refinance – 4.3% @ 9.12%; NCDs- 63% @ 9.43%; Sub-ordinated debt and public deposits – ~ 5% @8-9%.
 
- LIC Housing has applied for banking license and is a top contender for achieving the license given the strong backing by LIC.
 
LICHF has reported a stable performance in the current quarter despite macro concerns. However, we do not see any near term catalyst for the stock as margins are expected to remain subdued coupled with moderating growth. Asset quality which has remained a concern in the last two quarters remains a key moniterable factor to watch out for. Any recovery from these accounts will prove to be an upside trigger. We expect 21% CAGR in PAT for FY13-FY15E; slightly revised upwards post Q3 numbers. At CMP, the stock is trading at 1.45x FY14E and 1.25x FY15E ABV; 8.21x and 7.01x FY14E and FY15E EPS. We recommend to HOLD the stock with a target price of Rs 232.