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LIC Housing Finance Q4FY14 results update

April 23, 2014, Wednesday, 07:25 GMT | 02:25 EST | 10:55 IST | 13:25 SGT
Contributed by Nirmal Bang

LIC Housing Finance (LICHF) reported results marginally above expectations. Loan growth moderated and stood at 17.4% 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 and protect margins.

Margins improved sequentially; driven by seasonality. For FY14, margins were up by 7 bps reflecting lower cost of funds and increased yields due to repricing of assets. There was a provision write back of Rs 22.3 cr in Q4FY14 as against write back of Rs 3.5 cr in Q4FY13 and Rs 7.5 cr in Q3FY14. Provision worth Rs 24 cr was released on teaser loan portfolio which led to 17% YoY growth in PAT.

Retail book NPA witnessed sharp improvement both QoQ and YoY while corporate book continued to remain under stress. However, management is hopeful of recovery in these accounts by H1FY15E.

- Management intends to grow at around 20% for FY15E with focus on LAP. LAP currently contributes 3.6% 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 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. Majority of stress in the developer book has been taken into account and things should improve from here on.

- Despite increasing competition, LICHF has been able to sustain its market share and has also witnessed a stable pre payment ratio.

- On the provision front, around Rs 90 cr is slated to be released in FY15E which will boost the bottom line growth. Consequently, we have assumed lower provisions for FY15E.

- LICHF’s borrowing profile stands at: Banks -25% @ 10.7%; NHB Refinance – 4% @ 9.25%; NCDs- 66% @ 9.46%; Retail deposits – 1.5% @ 9.7% and Sub-ordinated debt – ~ 4% @8-9%.

- LICHF has declared dividend of Rs 4.5 per share (225%) for FY14.

LICHF has reported a stable performance in the current quarter. Improvement in margins, lower opex, relatively stable asset quality coupled with adequate capital adequacy ratio (Tier I @ 12.5%) continue to remain key positives for the company. We expect 15% CAGR in PAT for FY14-FY16E with RoA of 1.5% and RoE of 18.3% for FY16E. At CMP, the stock is trading at 1.68x FY15E and 1.43x FY16E ABV; 9.44x and 8.09x FY15E and FY16E EPS. Post the concerns over banking license have conceded, we have seen a sharp run up in the stock priceleaving limited upside potential from current levels. We maintain our HOLD rating with a target price of Rs 300; an upside of 7.4% from current levels.