LIC Housing Finance - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, LIC Housing Finance (LICHF) posted a slightly below estimate numbers with net profit growing by 147.0% yoy (on a low base due to standard asset provisioning on individual loans in 2QFY2012) to Rs.243cr. The NII disappointed growing by a moderate 4.5% yoy but lower provisioning expenses aided bottom-line. We recommend a Buy rating on the stock.

NIM disappoints: For 2QFY2013, LICHF's loan book grew strongly by 23.2% yoy (5.3% qoq) to Rs.69,119cr. Loan growth was driven by loans to the individual segment, which grew by 27.4% yoy to Rs.66,458cr, while loans to the developer segment declined by 33.1% yoy to Rs.2,660cr. The proportion of developer loans to overall loans dipped further from 4.6% in 1QFY2013 to 3.8% for 2QFY2013. The margins were down 35bp yoy, primarily on account of lower share of higher yielding developer loans (3.8% in 2QFY2013 compared to 7.1% in 2QFY2012). The cost of funds has been on a rising trend over the last year due to the high interest rates. The management has indicated that they would look more towards debt issues rather than bank borrowings to decrease their cost of funds. LICHF aims to increase the proportion of developer loans going forward which in our view should give a push to the margins. Also, the loans given out under fixed-ofloaty scheme (teaser rate loans with a fixed tenure of 3 years) at a fixed rate of 8.9% (between July 2009 and July 2010) are expected to re-price upwards (to at least 10.4%) and are expected to aid in margin expansion. The asset quality of the company remained stable on the gross NPA front (0.60% in 2QFY2013 compared to 0.64% in 2QFY2012), however a decline in provision coverage ratio (52.8% in 2QFY2013 compared to 81.6% in 2QFY2012) led to NPA levels increasing from 0.12% in 2QFY2012 to 0.28% in 2QFY2013.

Outlook and valuation: At the current market price, the stock is trading at a P/ABV multiple of 1.6x FY2014E ABV. Historically, the stock has traded at 0.8-2.1x oneyear forward P/ABV multiple over FY2006-FY2012, with a median of 1.4x, but it has been rerated over the past three years to 1.9x average. Considering that interest rates have a downward bias over the next couple of years and the company has healthy growth prospects, we recommend an Buy on the stock with a target price of Rs.298.

Source : Equity Bulls

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