LIC Housing Finance - Result Update Q4-FY 13 - Anand Rathi

LIC Housing Finance (LICHF) reported PAT of Rs. 316.3 Crore in Q4FY13 (up 25% YoY), against Q4, FY12 253.61 Crore. It has positively surprised by 24% which was above street expectation mainly because of 25% growth in retail mortgage.

Observations:

- 23% growth in outstanding loan portfolio which was around Rs. 77812 Cr. as on FY 13.

- Individual loan book grew by 25% to around 76000 Crore.

- Q4, 2013 NIMs are at 2.45% against 2.03% in Q3,2013 and net interest income grew by 24% to Rs. 461 Crore.

- Current borrowing structure is more skewed towards Bond and Bank borrowings. Cost of borrowing has declined sharply in Q4, 13 against Q3, 13. Bond financing stood at 61%, Bank financing stood at 31% and rest is financed from NHB, Deposit and subordinate loan.

Bank financing cost declined from 10.88% Q3, 13 to 10.63% in Q4, 13 while bond financing has come down from 9.5% in Q3,13 to 9.43% in Q4,13.

- CAR Ratio stand at 15.5% ( Tier I 10.5% and Tier II 5% ). Average ticket size of incremental borrowing has been Rs. 17 Lakhs in FY 13.

Going ahead:

- Company is targeting to reduce bank borrowing in total financing from 30% to 25% in FY 14. Company's Bank borrowing is on floating rate basis hence rate cut will give benefit the company overall cost. Bond is relatively cheaper source of financing. Current Bond rate for LICHF is around 8.89% for 10 years paper and further rate cut by RBI will reduce its cost of funding and increase the spread.

- LICHF is targeting overall loan book growth of around 20%. Company is focusing on increasing, LAP (loan against property) segment from 3% (2000 Cr. FY 13) to 5% and developers loan over 0.5% to 1% in FY 14 as both segments are high yield segment.

- The gross NPA improved 13 bps QoQ to 0.61%, whereas net NPA improved 10 bps QoQ to 0.35%. In absolute amount, gross NPA decreased Rs. 67 crore to Rs471 crore and net NPA fell Rs. 52 crore to Rs. 276 crore. Going forward, we expect asset quality to remain stable.

- LICHF closed the FY 13 at ROE of 18%. We Expect FY 14e ROE will be 18.5-19%% mainly because of improvement in NIMs.

Valuation:

We used Excess return model to value LIC Housing Finance. Currently LICHF Book Value is Rs.158 (FY14e) and 190 (FY15e).

Stock is quoting at P/BV of 1.55x (FY 14e) and 1.28x (FY 15e).

We believe going forward (FY 14) there will be improvement in NIMS and up-gradation and recovery of NPLs will boost ROE and will eventually come at normalized level of 20% in next two year.

We maintain our positive bias and target price of Rs. 312 for the stock.

Source : Equity Bulls

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