Steady as ever
LIC Housing Finance’s 3Q core earnings beat was driven by steady net interest margins and loan growth. While individual loan growth was steady, rising competition led to a moderation in growth expectations. Asset quality remained stable with gross NPAs of 0.58% and net NPAs of 0.32%. Going forward, the focus on higher yielding segments like LAP and project loans is expected to support margins, but competition may limit yield expansion.
Steady as ever
LIC Housing Finance’s 3Q core earnings beat was driven by steady net interest margins and loan growth. While individual loan growth was steady, rising competition led to a moderation in growth expectations. Asset quality remained stable with gross NPAs of 0.58% and net NPAs of 0.32%. Going forward, the focus on higher yielding segments like LAP and project loans is expected to support margins, but competition may limit yield expansion.
Steady as ever
LIC Housing Finance’s 3Q core earnings beat was driven by steady net interest margins and loan growth. While individual loan growth was steady, rising competition led to a moderation in growth expectations. Asset quality remained stable with gross NPAs of 0.58% and net NPAs of 0.32%. Going forward, the focus on higher yielding segments like LAP and project loans is expected to support margins, but competition may limit yield expansion.
Steady as ever
LIC Housing Finance’s 3Q core earnings beat was driven by steady net interest margins and loan growth. While individual loan growth was steady, rising competition led to a moderation in growth expectations. Asset quality remained stable with gross NPAs of 0.58% and net NPAs of 0.32%. Going forward, the focus on higher yielding segments like LAP and project loans is expected to support margins, but competition may limit yield expansion.
Darpin Shah darpin.shah@hdfcsec.com +91-22-6171-7328 Siji Philip siji.philip@hdfcsec.com +91-22-6171-7324
Steady as ever LIC Housing Finances (LICHF) 3Q core earnings beat was driven by steady NIM and loan growth. With higher competition, individual loan repayments were at a multi-quarter high. Rising proportion of highyielding LAP and project finance, along with the decline in CoF, supported steady spread/NIM. While project loan disbursements continued their steady run, the growth in individual loans was led by the LAP segment. Asset quality, too, remained stable. LICHFs focus on high-yielding LAP and project loans, coupled with the fall in CoF, augur well for spreads. However, given the rising competition (sharp base rate reductions by banks), we have further moderated our NIM expectations to ~2.4% vs. 2.5% and book growth to ~16% CAGR vs. ~17%. Maintain BUY with a revised TP of Rs 550 (2.4x 1-year forward ABV of Rs 229).
Key takeaways
Slower Individual disbursements (12% YoY; ex LAP
at ~7% YoY) and higher repayments (4.4%) led to
individual loan growth of ~15% (vs. our estimate of ~16%). The high-yielding LAP portfolio grew ~17% QoQ to form ~6.4%, and the project finance grew ~3% QoQ to ~2.6%. With rising competition, we have lowered loan growth assumption to ~16% CAGR vs. 17.5% over FY15-18E. Decline in interest rates and shift in borrowing mix led to 11bps decline in CoF. Despite rising proportion of high-yielding loans, yields declined ~12bps QoQ, led by ~30bps reduction in PLR. This lead to stable spread/NIM of ~1.57/2.58%. While the continued decline in interest rates and focus towards high-yielding loans will benefit LICHF, we believe the competition will keep yields under pressure. We lower NIM estimates to 2.4% vs. 2.5% (earlier) over FY15-18E.
Financial Summary (Rs mn) Net Interest Income PPOP PAT EPS (Rs) ROAE (%) ROAA (%) Adj. BVPS (Rs) P/ABV (x) P/E (x)
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16
Asset quality remained stable over the past three
quarters with G/NNPA at 0.58/0.32% to Rs 6.8bn.
Individual GNPAs (Rs 3.65bn) marginally declined to 32bps vs. 33bps. Project loans GNPAs, too, were flat QoQ at Rs 3.2bn (10.2% of project loans). Provisions cost jumped ~15% QoQ to Rs 344mn led by higher std. assets provisions (towards LAP and project loan segments) and shift in NPL buckets.
We expect LICHFs NII to grow at 18% CAGR over
FY15-18E, driven by loan growth of ~16% CAGR
and avg. NIM of 2.4% (vs. 2.2% in FY15). With rising provisions cost (std. assets related and base effect), we expect PAT to grow at ~15% CAGR. LICHFs return ratios are expected to remain stable with RoA of ~1.5% and RoE of ~19%.
Led by staff (19% YoY and QoQ) and advertising expenses Higher provisions led by Std assets provisions on LAP and project loans LAP/project loan portfolio stood at 6.4/2.6%. Repayment ratio further inched up to 4.4% vs. 3.1% YoY and 4.2% QoQ Bank borrowings declined to 12.5%
Individual GNPA at 32bps vs. 33bps
QoQ
Change In Estimates Rs mn NII PPOP PAT Adj. BVPS (Rs) Source: HDFC sec Inst Research
Income Statement (Rs mn) FY14 Interest Earned 90,858 Interest Expended 71,744 Net Interest Income 19,114 Other Income 2,488 Total Income 21,602 Total Operating Exp 3,133 Employee Expense 1,038 PPOP 18,470 Provisions & Contingencies 215 PBT 18,255 Provision for Tax 5,083 PAT 13,172 Source: Bank, HDFC sec Inst Research
Key Ratios FY14 VALUATION RATIOS EPS Earnings Growth (%) BVPS Adj. BVPS (100% cover) ROAA (%) ROAE (%) P/E (x) P/ABV (x) P/PPOP (x) Dividend Yield (%) PROFITABILITY Yield on Advances (%) Cost of Funds (%) Core Spread (%) NIM (%) OPERATING EFFICIENCY Cost/Avg. Asset Ratio (%) Cost-Income Ratio BALANCE SHEET STRUCTURE RATIOS Loan Growth (%) Borrowing Growth (%) Equity/Assets (%) Equity/Loans (%) Total Capital Adequacy Ratio (CAR) Tier I CAR
FY15
FY16E
FY17E
FY18E
26.1 28.7 149.2 142.2 1.6 18.8 17.8 3.3 12.7 1.0
27.5 5.2 154.8 150.2 1.4 18.1 16.9 3.1 11.1 1.1
33.8 23.2 181.5 176.1 1.5 20.1 13.7 2.6 8.6 1.3
37.5 10.8 211.0 205.8 1.5 19.1 12.4 2.3 7.6 1.5
41.7 11.3 243.9 236.9 1.4 18.3 11.1 2.0 6.8 1.6
10.70 9.51 1.19 2.20
10.54 9.31 1.24 2.17
10.34 8.96 1.39 2.46
10.04 8.71 1.34 2.42
9.74 8.51 1.24 2.36
0.4 14.5
0.4 15.2
0.4 14.9
0.4 15.2
0.4 15.7
17.4 19.3 8.4 9.2
18.6 17.7 7.5 8.1
14.5 14.8 7.6 8.3
16.0 15.8 7.7 8.3
17.0 16.5 7.6 8.2
16.4
15.3
16.0
15.5
15.0
12.2
11.8
12.2
12.3
12.2
FY14 ASSET QUALITY Gross NPLs (Rsm) 6,090 Net NPLs (Rsm) 3,536 Gross NPLs (%) 0.67 Net NPLs (%) 0.39 Coverage Ratio (%) 41.9 Provision/Avg. Loans (%) 0.03 RoAA TREE (%) Net Interest Income 2.32 Non Interest Income 0.30 Operating Cost 0.38 Provisions 0.03 Tax 0.62 ROAA 1.60 Leverage (x) 11.8 ROAE 18.8 Source: Company, HDFC sec Inst Research
FY15
FY16E
FY17E
FY18E
4,947 2,344 0.46 0.22 52.6 0.01
6,834 2,732 0.55 0.22 60.0 0.13
7,206 2,656 0.50 0.18 63.1 0.15
8,431 3,552 0.50 0.21 57.9 0.15
2.31 0.26 0.39 0.01 0.74 1.43 12.6 18.1
2.61 0.26 0.43 0.13 0.78 1.52 13.2 20.1
2.55 0.26 0.43 0.15 0.77 1.46 13.1 19.1
2.47 0.26 0.43 0.15 0.74 1.40 13.1 18.3
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LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16
RECOMMENDATION HISTORY LIC Housing Finance
Date 15-Jan-15 20-Apr-15 21-Jul-15 16-Oct-15 18-Jan-16
TP
650 600 550
CMP 465 442 465 495 464
Reco BUY BUY BUY BUY BUY
Target 520 528 528 569 550
500 450 400
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
350
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Page | 8
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16
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