LIC Housing Finance - Q4FY12 muted as expected; Margins levers to play in FY13 - Prabhudas Lilladher

LICHF's Q4FY12 PAT missed our estimates by 8% mainly due to higher opex and tax rate, while NII/margins were in‐line with muted expectations. Though FY12 has seen significant margin erosion due to large fixed rate book, we expect improvement in margins from Q1FY13 with ~200bps upward reprising of the asset book in FY13. With no asset quality and regulatory risks, robust growth and improving spreads/margins, we remain positive on LICHF with a PT of Rs340/share.

- Seasonally adjusted margins down in Q4FY12; Expect ~30bps improvement in FY13: Reported margins inched up ~17bps QoQ, but we believe this is largely due to Q4FY12 seasonality and adjusted for that spreads/margins contracted in Q4FY12 in line with our expectations. LIC capital infusion has largely aided to pay off LIC's outstanding debt. We believe worst in terms of margins is now behind us and we conservatively estimate ~30bps of margin accretion in FY13 as the 'Fix-O-Floaty' book starts reprising from Q1FY13 and some growth in builder portfolio expected to aid yields/spreads in H2FY13. (Please see our detailed margin expectation for FY13 on page 3).

- Mortgage growth robust; builder portfolio to pick up in H2FY13: Individual mortgage portfolio growth continues to remain strong with ~28% YoY growth in loan book and ~22% YoY growth in disbursements. Builder portfolio still continues to contract sequentially though there has been a marginal pick up in builder disbursements. Management expects ramp up in disbursements from Q2FY13, leading to a build up in builder portfolio in H2FY13.

- We like LICHF not only as a rate‐cut play but also believe that valuations at 1.5x Mar‐14 book is very reasonable considering robust growth, no regulatory risk and improving profitability. Also, we don't expect ROEs to dip <19% even considering the large QIP planned. Maintain Overweight rating.

Source : Equity Bulls

Keywords