LIC Housing Finance - Result Update 1QFY2014 - Angel Broking

LIC Housing Finance reported a healthy set of numbers for 1QFY2014, which were in-line with our estimates. NII expectedly grew by 24.9% yoy and earnings by 36.3% yoy. NIM expectedly declined by 15bp qoq, while asset quality witnessed seasonal deterioration (Gross and Net NPA ratios sequentially higher by 19bp and 16bp, respectively to 0.80% and 0.52%).

Healthy growth in Individual loan book: LICHF's loan book grew at a healthy pace of 22.1% yoy to Rs. 80,137cr during 1QFY2014. Loans to the individual segment grew by 24.2% yoy, while loans to the developer segment declined by 20.8% yoy and 9.6% sequentially. Hence, the share of developer loans declined from 3.4% in 4QFY2013 to 3.0% for 1QFY2014. During 1QFY2014, the margins declined 15bp qoq, primarily due to an 18bp sequential increase in the cost of funds, as the full impact of borrowing done towards the end of last quarter was felt in the current quarter. Recent RBI measures have led to significant increase in wholesale funding costs, which if sustains and is supplemented by lending rate increase by banks, it would then lead to increased funding costs for the company. However, the company has borrowed a total of ~Rs. 8,800cr in 1QFY2014, at an average cost of ~8.8%, out of the total ~Rs. 28,000cr it intends to borrow in FY2014, which is likely to offer some respite on the average borrowing costs, going ahead. On the asset side, severe competition is likely to continue affecting pricing power; however overall yields on advances might witness some support as the management targets to increase the share of high yielding loans against property from current 3% to 5% by FY2014, and selectively increase the share of high-yielding developer loans. Overall, we believe that margins for the company are likely to come under pressure. On the asset quality front, the company witnessed seasonal deterioration, as both Gross and Net NPA levels increased by 36.7% and 49.8%, respectively. PCR also declined by 559bp sequentially to 35.8%, as of 1QFY2014. During the quarter, the company witnessed no major delinquencies in its developer loan book, and the Management expects no negative surprises from this book in the near future.

Outlook and valuation: We have lowered our loan growth forecast and have recalibrated our margin expectations factoring in limited pricing power in the likely event of persistently high funding costs. At CMP, the stock is trading at 1.0x FY2015E ABV. We prefer to wait and watch macro developments in the near term, before we revisit our outlook and rating on the stock. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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