LIC Housing Finance Ltd. share price target

22 October 2019 2QFY20 PBT came in at INR8.6b (10% miss) due to higher-than-expected credit costs. first time in several quarters, the share of home loans increased sequentially (+30bp to 76.5%). provisions were largely stable at 43%. Spreads increased ~5bp QoQ to 1.4%. The share of floating rate loans declined from 93% to 82% sequentially as the company introduced a fixed- to-floating rate product. Opex grew 36% YoY to INR1.4b 20% above estimates driven by a sharp increase in employee expenses and commissions paid. While operating performance of the company has been steady, the continued increase in the GNPL ratio is concerning. Individual GNPL ratio has increased from 40bp to 150bp over the past two years.

Incorporated in 1989, LIC Housing Finance Ltd is one of the largest Housing Finance Companies in India with a key objective of providing long term finance to individuals for the purchase of house. It also provides finance to persons engaged in construction business and sale of residential properties. It has 273...

Background: LIC Housing Finance (LICHF) provides housing loans to individuals and corporate bodies. The company is also engaged in the home equity space. The company is a distant second player among housing finance companies in India. LIC Housing has an established network of direct selling agents and home loan agents. Through its subsidiary, LIC Housing operates homes for senior citizens. Loans to individual including LAP forms 93.3% of the loan book with the balance coming from...

While growth in the core segment accelerated slightly, it remains contextually unimpressive. Growth driven by the riskier non-core segment (~24% vs. ~16% in FY17) has not been a positive trade off. Higher yields from the rising share of the non-core segment were negated by weakening pricing power in the core segment while asset quality has deteriorated, led by the non-core segment. Except for the spike in provisions (+58/141%), operating performance was in line, and asset quality deteriorated QoQ as per seasonal trends. Maintain NEUTRAL with a TP of Rs 554 (1.5x Jun21E ABV of Rs 370).

Asset quality pressures in wholesale book; cut estimates by 4-5% Motilal Oswal values your support in the Asiamoney Brokers Poll 2019 for...

Loan growth continue to remain steady at 16% YoY with individual loans growing at 14.9% YoY, while developer loan on a lower base grew at strong pace of 62.3% YoY to | 13614 crore (6.9% of total loan). The management's focus continue to remain on affordable housing compared to LAP/LRDs; consequently share of LAP/LRD declined to 16.9% vs. 17.2% in Q4FY19. Asset quality witnessed deterioration with absolute stage 3 default at | 1757 crore vs.| 1524 crore. Stage 3 default ratio surged 44 bps QoQ to 1.98%. Absolute GNPA was at | 3887 crore out of which | 2307 crore was...

LIC Housing Finance (LICHF) reported weak numbers in Q1FY2020 with a marginal pickup in disbursement. However, a q-o-q decline in net interest margins (NIMs) and decline in asset quality on a sequential basis were dampeners. Loan growth was healthy, but was largely driven by loans to developer (which has historically been a pain point for the HFC, and also led to higher NPAs). We believe, LICHF may be vulnerable to margin pressures going forward as well as developer loans tend to turn sour, which can affect profitability. Moreover, due to intensifying...

The provisions have increased by 33% compared to that of FY18, mainly supported by 54% rise in provision for non performing assets. The Gross/Net NPA have declined to 1.53%/1.07% in Q4FY19, compared to 0.78%/0.43% in Q4FY18, and the stage 2 and 3 exposure at default assets have increased YoY by 52bps and 77bps respectively. At present, the RoA and RoE of LICHF stands at 1.34% and 16% of India (LIC), which is the largest insurance provider in India. With over 250 branches, ~2,300...

Between FY17-19, higher yielding and riskier non-core segments contributed 45% of incremental AUMs. These non-core segments now form ~24% of the book vs. 16.4% in FY17. LICHF has consciously taken on more risk by favoring non-core (project and LAP) segments, as growth and margins in its core business (retail housing loans) compressed. In spite of this, margins remained flat while asset quality worsened making this an unfavorable trade-off. The alarming rise in delinquent loans may be a harbinger of the stress that follows. We have thus downgraded our multiple to 1.25x from 1.5x An uncharacteristic (of 4Q) deterioration in asset quality, subdued core segment growth, the rising share of riskier loans (and increasing stress) prompt us to downgrade the valuation multiple for LICHF. Maintain NEUTRAL with a TP of Rs 471 (1.25x FY21E ABV of Rs 377) despite the recent correction (-12% in a month).

During the quarter, net interest income (NII) grew by 21.6% y-o-y to Rs. 1,222.5 crore, mainly driven by strong loan growth and some margin expansion on a y-o-y basis as the housing finance company (HFC) demonstrated its ability...