LIC Housing Finance (LICHF IN) - NIM continues to decline, driven by pressure on yields - Earnings update - CSEC Research

- LICHF's loan book increased (15.5% YoY, 3%QoQ) to INR 1514 bn, largely coming from project loans (61.3%YoY, 2.6% QoQ) and LAP to individuals (57.2%YoY, 2.3% QoQ).LAP's share in the overall portfolio has grown by 350bps YoY to 13.2%.

- Overall disbursements stood at INR 109 bn, growing at 20.3% YoY and 26.2% QoQ. Out of which, project loans (amounting to INR 6.1 bn) alone recorded 65.4%YoY (47.3% QoQ) growth and the individual loans segment grew by 18.4% YoY (25.1%QoQ).

The company's total borrowings stood at INR 1336 bn, with 78.8% being funded by NCDs, 8.8% from banks, 5.1% from deposits and the rest from NHB, CP and subordinated debt. Declining trend in bank borrowings (8.8% now from 9.4% in 2QFY17) helped LICHF bring down its Weighted average cost to 8.37% (-57bps YoY).Yield on portfolio dipped by 92bpsYoY (29bps QoQ) to 10.29%, despite strong growth in project loans and LAP segments. Consequently, NIM compressed by 30bps YoY (12bps QoQ) to 2.38%.

Valuation: The stock is currently trading at P/BV of 2.0X, P/E of 11.9X FY19E. The recoveries in asset quality with declining cost of funds and change in portfolio mix gives a positive outlook for LICHF. Hence, we rate the stock OUTPERFORMER, with a revised target price of INR 651, assigning a P/BV of 2.2X on FY19E.

Risks: Yield correction done in Q1 due to competition; asset quality risks due to increase of share in LAP segment

Shares of LIC HOUSING FINANCE LTD. was last trading in BSE at Rs.599.45 as compared to the previous close of Rs. 619.3. The total number of shares traded during the day was 384872 in over 8930 trades.

The stock hit an intraday high of Rs. 621 and intraday low of 597. The net turnover during the day was Rs. 233451175.

Source : Equity Bulls

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