Angel Broking neutral on LIC Housing Finance

Angel Broking's report on LIC Housing Finance (LICHF)

LICHF's loan book grew at a healthy pace of 22.1 percent yoy to Rs 80,137cr during 1QFY2014. Loans to the individual segment grew by 24.2 percent yoy, while loans to the developer segment declined by 20.8 percent yoy and 9.6 percent sequentially. Hence, the share of developer loans declined from 3.4 percent in 4QFY2013 to 3.0 percent for 1QFY2014. During 1QFY2014, the margins declined 15bp qoq, primarily due to an 18bp sequential increase in the cost of funds, as the full impact of borrowing done towards the end of last quarter was felt in the current quarter. Recent RBI measures have led to significant increase in wholesale funding costs, which if sustains and is supplemented by lending rate increase by banks, it would then lead to increased funding costs for the company.

However, the company has borrowed a total of ~Rs 8,800cr in 1QFY2014, at an average cost of ~8.8 percent, out of the total ~Rs 28,000cr it intends to borrow in FY2014, which is likely to offer some respite on the average borrowing costs, going ahead. On the asset side, severe competition is likely to continue affecting pricing power; however overall yields on advances might witness some support as the management targets to increase the share of high yielding loans against property from current 3 percent to 5 percent by FY2014, and selectively increase the share of high-yielding developer loans. Overall, we believe that margins for the company are likely to come under pressure. On the asset quality front, the company witnessed seasonal deterioration, as both Gross and Net NPA levels increased by 36.7 percent and 49.8 percent, respectively. PCR also declined by 559bp sequentially to 35.8 percent, as of 1QFY2014. During the quarter, the company witnessed no major delinquencies in its developer loan book, and the Management expects no negative surprises from this book in the near future.

Outlook and valuation: We have lowered our loan growth forecast and have recalibrated our margin expectations factoring in limited pricing power in the likely event of persistently high funding costs. At CMP, the stock is trading at 1.0x FY2015E ABV. We prefer to wait and watch macro developments in the near term, before we revisit our outlook and rating on the stock. We maintain our Neutral rating on the stock," says Angel Broking research report.

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