Accumulate LIC Housing Finance; target of Rs 537: Prabhudas Lilladher
Prabhudas Lilladher’s research report on LIC Housing Finance
Buoyed by asset growth (16% YoY), stable NIMs (2.35%) and lower provisions PAT at Rs 5.9bn (PLe: Rs 5.6bn) recorded healthy 26% YoY growth in Q3FY19 for LICHF. While loan traction (16.3% YoY growth) exceeded expectations, project loans (84% YoY growth, 27% YoY disbursements growth) continue to dominate incremental growth. Past two quarters have also observed increased share of non-individual mix, namely; LAP and developer mix catching up to 6.3% and 16.5% levels which have aided yields & margins in the current testing times. Moreover, meaningful asset re-pricing 70bps in past 6 months led to expansion in reported yields at ~10.45% despite CoF climbing to 8.45% resulting into steady margins at 2.33% on sequential basis. Asset quality performance stood mixed bag with developer GNPAs improving sharply by 389bps YoY/204bps QoQ to 6.2% whereas individual home loan NPAs spiking 44bps to 0.93%. While consolidation in smaller HFCs, increased floating rate loans and continued pacing up of non-individual loan traction augmented business momentum for company in Q3, competitive intensities (especially from banks) should restrict growth to 15-16% over FY19-21E. With minimal levers to NIM expansion ahead and dissatisfactory performance on NPA since past few quarters, we foresee NIMs normalizing to 2.3% levels and GNPAs climbing moderately higher to 1.2-1.25% over FY19-21E. RoAs at 1.2% over FY19-FY21E, LICHF fails to exhibit sustainable strong earnings and business trends and hence re-rating stands distant despite lower valuations.
Reiterate Accumulate for a price target of Rs 537 (unchanged) as we value the company at 1.5x at Sep’21 PBV.
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