LIC Housing Finance - Healthy loan book growth, NIMs expansion = positive FY14E outlook - IndiaNivesh

Loan growth to remain healthy

Over last 3-4 years, LIC Housing has consistently outperformed the industry on loan book growth front. LIC Housing reported 32% CAGR loan growth during FY 09-12. Owing to challenging macro environment, loan book growth slightly slowed-down (23.8% y-o-y loan book growth rate seen at Q3FY13-end). This slow-down is mainly on a/c of ~20.0% decline in y-o-y loans made to Builders segment (to Rs 28.1 bn).

Last 2 quarters have seen lowest share of Developer loans to total loan book (3.8% in Q2FY13 and 3.9% in Q3FY13). We sense that this ratio would improve significantly from here, as loans made to builders would catch-up from here-on, as builders are likely to benefit from lower interest rates, faster pace of approvals seen across Delhi & Mumbai real estate markets. Also, we expect the loan book growth momentum to be maintained, as LIC Housing continues to penetrate in smaller cities across Eastern & Central India. On a whole, we expect the overall loan book of LIC Housing to grow at 21.2% CAGR during FY12-14E to Rs 927.1 bn.

Given their strong market positioning and FY14E growth prospects, we remain positively biased towards the stock. Also factors such as expectations of healthy loan book growth, NIMs expansion in FY14E, NPAs well under control comfort us about the strong fundamentals of the LIC Housing.

Even though NIMs have fallen down in the last 2 quarters to 2.09% in Q3FY13, we are of the view that fall in the NIMs has bottomed-out and there exists scope for NIMs improvement. Our view of expansion in the NIMs is on the basis of (1) repricing of Rs 57 bn of teaser loans in next 2 quarters, (2) increasing dependency on the low cost ECBs, (3) pick-up in lending to builders segment, which usually has higher yields (vs. individual home buyers).

Higher loan growth in FY14E, when coupled with factors such as, better NIMs, containment of NPAs would translate to ~18% net profit CAGR during FY12-14E. At CMP of Rs 240, LIC Housing is trading at FY13E & FY14E, P/ABV of 1.9x and 1.6x, respectively. Even though we expect FY13 RoEs to decline to 16.6% (from 18.6% in FY12), pick up across the metrics mentioned above should help the company report improved ROEs of 18.1% in FY14E. After revising our estimates and assigning P/ABV multiple of 2.0x, we have arrived at revised price target of Rs 294 (earlier target of Rs 327).

Source : Equity Bulls

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