Aditya Birla Money neutral on LIC Housing Finance

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Aditya Birla Money neutral on LIC Housing Finance

Aditya Birla Money has maintained neutral rating on LIC Housing Finance with a target of Rs 267, in its February 6, 2012 research report.

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Aditya Birla Money has maintained neutral rating on LIC Housing Finance with a target of Rs 267, in its February 6, 2012 research report.

"LIC Housing Finance announced its unaudited results for Q3FY12. The top-line as well as bottom-line (adjusting for write back of provision) came below our expectations on the back of lower NIMs."

"Net Interest Income (NII) declined during the quarter by 7.5% YoY (decline of 2.5% QoQ) from `3341.3 mn in Q3FY11 to `3257.7 mn in the current quarter. The main reason for the subdued growth in NII was lower net interest margin (NIMs). NIM declined by 18 bps QoQ and 87 bps YoY to 2.27% in the quarter, led by higher cost of funds and slower disbursement growth in high yielding developer loan portfolio. The management expects NIM to improve going forward in FY13 led by higher disbursement in developers portfolio (target of 10% of the total loan portfolio currently at 6.0%) coupled with repricing of fixed rate loans (Fix-o-Floaty). We expect 50 bps decline in margins for full year FY12 vs FY11. Net Profit increased 43.2% YoY (210.7% QoQ) on the back of write back of provisions as the company has aligned its provisioning policy on Standard Assets / NPA to match with revised NHB norms and consequently the company has reversed the excess provision of `788.9 mn.(net of provisioning required to be made in current quarter). After the write back the company has utilised the excess provision that it was carrying in its books. The write back of provisions aided in profit growth despite muted growth in NII and higher operational cost. Cost to income ratio during the quarter increased by 378 bps YoY (-28 bps QoQ) to 14.1%."

"Outstanding Mortgage Portfolio as on Q3FY12 was `587.1 bn as against `463.8 bn as on Q3FY11, registering a YoY growth of 26.6% (4.7% QoQ). Total loan disbursements registered a muted growth of 2.1% (-8.3% QoQ) during the quarter mainly led by lower disbursement in the developer's loan portfolio (~62.0% decline both on YoY and QoQ basis) and subdued growth in individual loan disbursals (8.4% YoY, -3.5% QoQ). Lower disbursal in the developer's portfolio has consequently lowered the proportion of the developer loan portfolio to ~6.0%. The management is confident of achieving 20% growth in disbursements in the current fiscal. Going ahead, we expect loan book CAGR of 26.4% over FY11-13E."

"The extent of compression in margins during the quarter was surprising; however, we believe the margin to rebound on the back of repricing of fixed rate loans going forward. The company is evaluating to raise capital through QIP in the near term. We have not factored in the intended equity dilution in our estimates which could act as a trigger for the stock. We estimate LICHF to report an EPS CAGR of 20.3% over FY11-FY13E. ABV is estimated to grow at 20.4% CAGR during the same period. Going forward, we expect the company to deliver healthy net interest income growth (CAGR 19.6% FY11-13E) and earnings growth (CAGR 20.3% FY11-13E). We have slightly increased our target price to `266.6 from `254.6 earlier, giving an upside potential of 2.0% from current levels, thus changing the rating from Accumulate to Neutral," says Aditya Birla Money research report. 

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