Hold LIC Housing Fin; target of Rs 285: Emkay

Emkay Global Financial Services has recommended hold rating on LIC Housing Finance with a target of Rs 285, in its April 25, 2012 research report.

“LICHF’s Q4FY12 NII at Rs3.7bn (down 11.8% yoy) was a tad better than our / street estimates of Rs3.5-3.6bn. The reported margins at 2.44% expanded 17bps qoq (our expectations of 10bps). The growth in retail disbursement bounced back to 22% (vs 8.4% in Q3FY12) adjusted for one off loan acquisitions in same quarter last year. The projects loan disbursements remained flat as expected. Marginally better show on NII was offset by sharp increase in marketing expenses as advt and commission expenses more than doubled qoq. Due to higher Opex and higher tax rate, the APAT at Rs2.5bn was largely in line with expectations.”

“LICHF’s cost of funds for Q4FY12 declined by a sharp 19bps qoq which has helped the NIMs improved by 17bps. The management attributed this to few things: (1) LICHF did large part of borrowings towards fag end of Dec-11 and early Jan-12 when NCD yields (AAA) came off by 50-60bps before moving up again (2) it replaced some of the bank loans with NCDs and (3) some chunky borrowings were done at the fag end of Q4FY12. The individual loan disbursements grew by strong 22% (adjusted for one-off buyouts in Q4FY11) driven by strong growth in the southern (30-35%), eastern (30-35%) and central region. For Q4FY12, even NCR and Mumbai region have also shown positive growth. The individual loan book also grew in line with disbursement growth at 28% yoy and 8.6% qoq. Seemingly, the “no-prepayment/foreclosure charges” norms from NHB have not affected LICHF’s loan book as the pre-payment rates remained quite stable at 11.75% (annualised) for Q4FY12 in line with the previous few quarters. The disbursements in projects loans at Rs2.7bn were in line with our estimates. The overall loan growth (including project loans) stood at 23.5%.”

“While we remain mindful of the gains LICHF will make on repricing of the teaser rate loans in FY13, we believe that the expansion in NIMs will remain limited to 35bps (even assuming 50bps reduction in the overall borrowing costs). We expect the NIMs to bounce back to 2.7% in FY13E but expect them to be still lower than peak of 2.9% touched in FY09. The limited expansion in the NIMs is reflective of our view that the competition in the mortgage business is likely to intensify as the banks will aggressively look at this business in light of slow down in other loan sanctions and low NPLs arising in the mortgages. We believe that the discounted rate loans are here to stay for longer time and will act as a check on the yield on advances. We have lowered our NII and earnings estimates for FY13E by 8% and 6% respectively for lower expansion in NIMs. We expect FY14E NIMs to improve marginally to 2.8%. FY14E reported earnings will also benefit from the write back of provisions on the teaser rate loans to the tune of Rs1.8bn (teaser rate provisions can be re-set after 12-m from interest re-set). We are building in a CAGR of 22.8% in the loan book over FY12-14E.”

“We have assigned a multiple of 1.9x to average ABV of FY13/14E of Rs150 looking at the RoEs of 22% over FY12-14E and assign a TP of Rs285 (up by 9.6%) to the stock. The upgrade is driven by rollover of the multiple from FY13 to average of FY13/14. We retain hold rating on the stock,” says Emkay Global Financial Services research report. 

Non-Institutions holding more than 90% in Indian cos

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