LIC Housing Finance Ltd. share price target

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...

6 May 2019 4QFY19 PAT increased 17% YoY to INR5.7b (3% beat), driven by better-than- expected margins and lower credit costs, despite a sharp rise in NPAs (+30% QoQ). Share of builder loan portfolio increased to 6.7% v/s 6.2% a quarter ago and 4.9% a year ago. Management guided for continued growth in the builder loan segment in FY20, as it remains a focus area for the company This resulted in 15% QoQ NII growth v/s 6% loan growth. In absolute terms, GNPA increased 30% QoQ (INR6.8b) to INR29.7b, while individual GNPA increased 30%+ QoQ (INR4.7b) to INR20.7b. Builder loan GNPA in % terms increased to 6.9% v/s 6.1% a quarter ago, while absolute GNPA increased to INR9b v/s INR7b a quarter ago.

Loan growth remained stable at 16.2% YoY at | 194646 crore on the back of healthy traction in LAP & developer financing. Consequently, their share of LAP has increased from 12.6% in FY18 to 17.20% in Q4FY19 & developer portfolio has increased from 3.8% in FY18 to 6.25%. Overall disbursement growth was weak at 7.2% YoY but strong sequentially. Headline asset quality deteriorated marginally with GNPA ratio increasing to | 2972 crore by 27 bps QoQ to 1.53%. Gross NPAs in individual segment...

Steady Loan growth with increasing individual GNPA... Disbursements witnessed a growth of 4% YoY driven by developer finance loans while Net Interest Income grew by ~42%YoY. Net Interest Margin was flat on aQoQ basis at ~2.33%. Asset quality deteriorated with a higher GNPA of 1.26% (+39bps YoY) while, NPAs in the individual loan book increased to 0.93%. PAT grew by 26%(YoY) on account of provision reversing. We expect loan growth to sustain due to strong mix of salaried class...

ICICI Securities Ltd | Retail Equity Research LIC Housing Finance reported operationally healthy numbers with healthy NII growth of 42% YoY on the back of a deflated base Credit growth came in at 16% YoY to | 181698 crore while margins remained steady at 2.33% due to passing of rate hikes to customers. However, disbursement growth was flat YoY Loan traction was led by developer portfolio, which increased by a strong rate of 84% YoY to | 11364 crore (comprising 6.2% of total...

Maintain BUY with a TP of Rs 527 (1.5x Dec-20E ABV of Rs 351). 3Q was yet again a mixed bag for LICHF. While yields and spreads registered a commendable increase of ~21 and ~6bps respectively, QoQ, NIMs were flat QoQ at ~2.33%. Disbursals dipped ~11% QoQ, weighed down by lower project disbursals as individual disbursals (home loan +LAP) were flat, a mild disappointment.

31 January 2019 LIC Housing Finances (LICHF) 3QFY19 PAT increased 26% YoY to INR5.7b (in- line), driven by stable loan growth and low base of last year. LAP) were up only 2% YoY to INR115b in the quarter, while corporate disbursements increased 27% YoY to INR12b. Loan book grew 3% QoQ/ 16% YoY to INR1.81t. Given the lower balance transfers due to the tight liquidity situation, repayment rate (annualized) declined meaningfully from 20% to 16% YoY. NII grew 41% YoY as the company recognized a net loss on modification of loans amounting to INR149m in 9MFY19 v/s INR1.6b in 9MFY18. We reiterate our thesis that the worst of spreads is behind us and LICHF should be able to maintain/improve spreads, going forward (refer to our Given 93% of loans are floating rate and 74% of borrowings are on fixed rate, spreads are likely to remain stable or improve.

Well-rated corporates with strong parentage like LICHF would be able to borrow at much lower rates than peers, in these times of tight liquidity. Also, balance transfer out of LICHFs book will reduce drastically, going forward. We expect 12-13% CAGR in the loan book over FY18-21, driven by a pick-up in the core home loan growth and slowdown in LAP/developer loan growth. LIC Housing Finance Core home loan rate now starts at 8.8% (non-annualized) while that for LAP/developer is ~200bp higher. Given that >80% of the loan book is now at floating On the other hand, our analysis (click reveals that, given the liability structure, overall cost of funds for LICHF will rise only ~40bp cumulatively over FY18-20E. In addition, the company has been rated AAA by CRISIL since 2002. With its strong parentage and AAA-credit rating since 2002, we believe LICHF will be much better placed than peers in such times of tight liquidity. In addition, balance transfer pressure could ease as peers are facing liquidity pressure.

Modest Loan Growth: Loan growth was modest at 16%, driven by LAP and developer loans growing by 41% and 83% respectively. Whereas it core individual home loan segment has managed a growth of only 9%. Margin under pressure, likely to stabilize: NII growth of 5% is way lower than loan growth on account of 23bps compression in margins to 2.4%. It has taken a PLR hike...

Maintain BUY with a TP of Rs 515 (1.5x Sept-20E ABV of Rs 343). LICHFs 2Q was a mixed bag. While the business momentum was healthy, the stagnant margins and rise in GNPAs were disappointing. Disbursal growth was driven by individual (+30% QoQ) and project disbursals (+3.3x QoQ). While the overall growth (+16%) was at a multi-qtr high, tepid growth in the core segment (+9% YoY) lagged peers.