Prabhudas Lilladher recommended accumulate rating on LIC Housing Finance with a target price of Rs 597 in its research report dated May 06, 2019.
Prabhudas Lilladher's research report on LIC Housing Finance
Healthy revenue stream (20%YoY growth) and loans (16%YoY growth) led to robust 25%YoY growth aiding improved profitability for LICHF (operating profit grew 25%YoY, PAT 17%YoY at Rs 6.9bn vs PLe: Rs5.7bn). However, asset quality deterioration in an historically somber quarter came in as a huge disappointment with absolute GNPAs jumping 127% YoY, GNPA ratio climbing 75bps to 1.53% in Q4FY19. Developer NPAs stood elevated at 9%+ but developer disbursements declined 10% YoY. Meaningful asset re-pricing 70bps in past 6 months led to expansion in reported yields at ~10.53% despite CoF climbing to 8.5% resulting into better margins at 2.5% in Q4FY19. While consolidation in smaller HFCs, increased floating rate loans and consistent non-individual loan traction augmented business momentum for company in Q4, banks' competitive rates, continued developer book concerns should restrict NIMs (2.4-2.45% FY20-21E) and keep asset quality in check (1.5% FY21E) and therefore there exists limited levers to RoA (expect 1.2% over FY21E).
With downside risk to return ratios, reiterate Accumulate for a price target of Rs 597 (unchanged) as we value the company at 1.7x at Mar'21 PBV.
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