INSUBCONTINENT EXCLUSIVE:
Jefferies Group has a hold call on LIC Housing Finance with a target price of Rs 590.
The current market price of LIC Housing Finance is Rs
521.95.
Time period given by Jefferies is one year when LIC Housing Finance price can reach the defined target
Jefferies' view on the company:1Q PAT (Ind AS) rose 18.4 per cent YoY to Rs 5.7 billion vs our Rs 5.4 billion estimate
Loan growth was muted and NIMs fell YoY, but this was offset by lower opex as per Ind AS
Asset quality disappointed
We trim FY19- 20E EPS by 1-2 per cent
Spreads should improve QoQ, but sharp increase appears unlikely
Competition may continue to weigh on AUM growth
Projected loans have aided growth, but slippage remains high in this segment
At 1.6x FY20E BV, valuations appear reasonable
Hold.
PAT rose 18 per cent YoY in 1Q: PPOP rose 10.6 per cent YoY as weaker NII (6.6 per cent YoY) was offset by lower opex as per Ind AS
Credit costs were much higher under Ind AS, but this was offset by lower tax
Other key impact of Ind AS transition incl
FY18 BV uplift of nearly Rs11-12bn (9 per cent) mainly due to release of DTL
Mgmt expects Rs 2-2.5 bn of gains from excess ECL provision release in coming quarters.
Loan grew 14.7 per cent YoY, Home loan disbursal
muted: Home loan grew 8.8 per cent YoY, non-core loan grew 44 per cent YoY (project loan 49.5 per cent, LAP 42.5 per cent)
Disbursal grew 10 per cent YoY (HL 7 per centYoY, LAP -6 per cent YoY, project loan +115 per cent YoY)
Mix of non-core loans rose to 21 per cent (19.2 per cent 4Q)
Retail sanctions were up 13 per cent
Competition in salaried segment may be weighing on loan growth
LICHF has opened 24 marketing offices in new locations, which should contribute to growth
We forecast 14.8 per cent loan CAGR over FY18-20E.
NIMs fall 18bps YoY, but should improve modestly: 1Q NIM (Ind AS) was 2.34 per cent (4Q
LICHF has taken three rate hikes aggregating to 30 bps in 1Q (April, mid June) and another 20 bps hike in Aug
Portfolio spreads rose 9 bps QoQ to 1.9 per cent, reflecting part of the rate hike
Full impact of lending rate hike and re-pricing of back book should lift spreads
NCDs maturing in FY19 (13 per cent of borrowings) would likely be refinanced at similar costs (8.5 per cent avg coupon)
Incremental spreads are higher at 2.2 per cent (factoring rate hike) vs
back book, but incremental funding cost may rise as funding mix normalizes (higher CP funding in 1Q)
We forecast NIMs of 2.38 per cent in FY19E and 2.46 per cent in FY20E.
Asset quality worsens: 1Q GNPA/ Stage 3 assets rose 43 bps QoQ to 1.2
per cent (Individual GNPA 0.81 per cent, +39 bps and developer GNPA 8.8 per cent +100 bps QoQ)
This is despite Rs 400 mn of recovery (Rs700 mn including interest) pertaining to a large account
While GNPA usually rises in 1Q, the jump is higher than usual seasonality and is a concern
LICHF's mix of project loans have been steadily rising, but its track record on underwriting project loans remains patchy
1Q ECL provision was nearly 0.54 per cent (0.49 per cent)
Credit cost under Ind AS has increased to 0.38 per cent in 1Q (0.56 per cent 1Q FY18 vs
0.27 per cent as per GAAP).
