Hold LIC Housing Finance; target of Rs 560: ICICI Direct

ICICI Direct's research report on LIC Housing Finance

Headline asset quality continued to witness deterioration in Q1FY19. GNPA ratio saw a sequential increase of 43 bps to 1.21%, partly seasonal also. As per NHB norms, total gross NPAs of the company were at Rs 2036 crore vs. Rs 1304 crore in Q4FY18 (may not be fully comparable in Ind-As). Gross NPA in individual segment was 0.81% Margins remained under pressure with ~15 bps YoY decline to 2.34%, lower than our estimate. Advances traction came in line with estimate at 15% YoY to Rs 168652 crore. Individual book increased 13% YoY to Rs 160265 crore while developer loans increased 49.5% YoY to Rs 8387 crore. Disbursement growth was at 10% YoY. The proportion of loan against property (LAP) portfolio, which is part of individual loans, increased to 16% of total loans vs. 14.3% in Q4FY18 PAT came in higher and increased 18.4% YoY to Rs 568 crore, mainly due to higher NII at Rs 980 crore (up 6.6% YoY) & lower provisions.

Outlook

LICHF’s core individual book has been witnessing a moderation in growth due to increasing competition. With yield pressure & CoF rising, margins were under pressure. Though an improvement in NIM is expected ahead due to a rise in high yield assets, it would be lower than peers. Further, asset growth at ~15% YoY has also lagged peers. We expect PAT CAGR of 16% (vs. 19% earlier) in FY18-20E to Rs 2812 crore. We revise our target price lower to Rs 560 (earlier Rs 600) valuing at 1.7x FY20E ABV. We maintain HOLD recommendation. Led by Ind-As method of reporting in Q1FY19, the net worth increased by ~Rs 1000 crore due to a reversal in DTL provisions. Further, ~Rs 200 crore increase could occur due to release of provisions under ECL, which has not been factored by us.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More