September LIC Housing Finance Ltd.

Transcription

1 September 2009 LIC Housing Finance Ltd.

2 Disclaimer This presentation is strictly confidential and is being shown to you solely for your information and may not be reproduced, retransmitted, further distributed to any other person or published, in whole or in part, for any purpose. This presentation has been prepared by LIC Housing Finance Limited ("LIC HFL"), and does not comprise, constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities, nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or investment decision. The information in this presentation should not be treated as giving investment advice. This presentation contains industry and market data which LIC HFL has not independently verified and, consequently, does not makes any representation, regarding the accuracy of such data. This presentation is confidential and is only addressed to and directed at persons who are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC) and (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ) and Article 49(2)(a) to (d) of the Order, and (ii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as Relevant Persons ). This presentation must not be acted on or relied upon in the United Kingdom, by persons who are not Relevant Persons. Any investment or investment activity to which this presentation relates is available only to Relevant Persons. This presentation is not being made and will not be made directly or indirectly in or into, or by use of the mails of, or by any means or instrumentality of interstate or foreign commerce of, or any facilities of a national securities exchange of, the United States or to U.S. persons (within the meaning of Regulation S under the United States Securities Act of 1933, as amended (the Securities Act )). This includes, but is not linked to, facsimile transmission, electronic mail, telex, telephone and the Internet. Accordingly, copies of this presentation must not be directly or indirectly mailed or otherwise transmitted, distributed or forwarded in or into the United States. The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. No person is under any obligation to update or keep current the information contained herein. By attending the presentation to which this document relates or by accepting this document you will be taken to have represented, warranted and undertaken that: (i) you are a Relevant Person (as defined above); (ii) you are not a person located in the United States or any agent, fiduciary or other intermediary acting on a non-discretionary basis for a principal giving instructions form within the United States or any U.S. person; (iii) you have read and agreed to comply with the contents of this notice; and (iv) you will not at any time have any discussion, correspondence or contact concerning the information in this document, the related presentation with any of the directors or employees of LIC HFL or its subsidiaries nor with any of their respective suppliers, customers, sub-contractors or any governmental or regulatory body without the prior written consent of LIC HFL. 1

3 Contents A. Indian Housing Finance: Industry Dynamics B. LIC Housing Finance Ltd: Overview C. Competitive Strengths D. Key Management Personnel E. Financial Summary 2

4 High Growth Trajectory for Housing Finance in India India s robust economic growth, increasing income levels & urbanisation are leading to an increase housing sales The Indian housing market is amongst the most underleveraged market By 2013, housing stock is estimated to grow to Mn units: as against Mn units in 2008 Urban Areas To 58.2 Mn units from 50.9 Mn in 2008 Rural Areas To 87.2 Mn units from 72.9 Mn in 2008 Key Demand Drivers Population Growth Estimated to grow to 1,200 Mn by 2012 from 1,100 Mn The biggest population increase is expected to be within the years age group- consequently increasing India s working population, thereby increasing housing demand Urbanisation Growing employment opportunities - key trigger behind the migration of workforce from rural areas to urban areas Urban population growth at 2x the growth of rural population Urban population is expected to account for ~32 % of the total population by 2015 Affordability Urban & rural household with annual incomes exceeding Rs 0.5 Mn are expected to grow by 12% & 7% respectively in the next 5 years Tax incentives offered to borrowers and lenders have been instrumental in driving growth in the housing & the housing finance sector % Source:-IIFL Research Source:- Crisil Research. P = Projected Low Mortgage Penetration in India Mortgage as a % of GDP Denmark UK USA Germany Hong Kong Taiwan Singapore Malaysia Korea Thailand China India Urbanisation Boom (Mn) P 2011 P 2013 P 2015 P Urban Population (%) Per cent of Urban Population (RHS) 3

5 Key Dynamics of Housing Finance in India The increasing availability of housing finance & low interest rates have driven the boom in housing purchases Housing finance penetration is expected to improve in urban areas & reach 38% by FY13 & reach 6.5% in rural areas by FY13 Disbursements Between FY03 - FY08, housing finance outstandings are estimated to have grown at a CAGR of about 31%, mainly driven by disbursements Key drivers for growth in disbursements: 1. Extensive branch networks of lenders across India 2. Increasing acceptability of loans among customers 3. Comfortable customer earning profile, as the majority of customers earn salaries and have a stable source of income 4. Comfort of lenders in the sale of collateral in case of defaults Interest Rates: Indian HF principally based on floating rate lending Reflected in LIC HFL s loan portfolio, with ~96% of its individual loan approvals being floating rate loans as of the year ended FY 09 Housing loans are offered for an average tenure of years, while liabilities for lenders are generally for less than 10 years Floating rates are reset when the cost of funds for lenders increase Average Ticket Size (ATS) (Rs Bn) 1,600 1,400 1,200 1, % 865 Source:- Crisil Research 95% 90% 85% 80% 75% Disbursement trend in India 27% 1,100 1,185 8% 1,171 1,088 1,164 High Concentration of Floating Interest Rates -1% -7% FY 06 FY 07 FY 08 FY 09 FY 10 P FY 11 P 79% Disbursments 82% 86% 7% Growth Rate (RHS) Principal amount of floating rate HF loans by disbursement as a % of total HF loans 92% 90% 85% 30% 25% 20% 15% 10% 5% 0% -5% -10% ATS for new homes is estimated to have grown at a CAGR of 18% (~2.3x) in urban areas & at a CAGR of 12% ( ~1.7x) in rural areas from FY03 to FY08 70% FY 05 FY 06 FY 07 FY 08 FY 09 P FY 13 P HF = Housing Finance; P = Projected Source: Crisil Research 4

6 Contents A. Indian Housing Finance: Industry Dynamics B. LIC Housing Finance Ltd: Overview C. Competitive Strengths D. Key Management Personnel E. Financial Summary 5

7 LIC Housing Finance Ltd: An Overview Promoted by the LIC of India in 1989, LIC HFL is the 2 nd Largest Housing Finance Company in India; based on incremental disbursements Objective - to provide long term finance to individuals for purchase/construction/renovation of new/existing homes LIC HFL went public in 1994 & launched its maiden GDR in 04 ($29.5 Mn) Loan Book Growth: In spite of the challenging economic environment, LIC HFL s loan sanctions grew at a CAGR of 23% during the last 5 years (FY 04-09) Robust Asset Quality: While recording an impressive growth in loan book, gross NPA reduced from 4.4% in FY 04 to 1.07% in FY 09. (Source: Company & IDFC SSKI Research) New loans at low LTVs (48.8% in FY 09) leading to low EMI/income ratios (Source: Company & IDFC SSKI Research) Safe Customer Profile: Individual home loans comprise of over 91% of the loan book 80% of these individuals are salaried employees Extensive Marketing Network: Over 1 Mn customers serviced till date More than 158 marketing offices over 450 locations Top Credit Ratings AAA (for Debentures, Banks & bonds), P1+ (for Commercial Paper & bank loans) & FAAA (for FDs) by CRISIL Value Creation from Investments & Subsidiaries LIC HFL held 39.3% stake in LIC Asset Management Company LICHFL sold 19.3% to Nomura. Expected from this transaction profit is ~ Rs 1,380 Mn (Closure during Q3 FY10) Holds 100% in LICHFL Care Homes Ltd & LICHFL Financial Services Ltd (Rs Mn) 350,000 Continuous Growth in Loan Book 300, , , , , , , , ,447 97, ,000 50,000 0 Source:- Company Filings 5 Yr CAGR 23% Shareholding Pattern (As of June 30 th 09) Source:- Bombay Stock Exchange Public 16.7% FII 23.5% MFs/ other 19.0% LIC 40.8% 292,540 FY04 FY05 FY06 FY07 FY08 FY09 Q1 FY 10 6

8 LIC Housing Finance Ltd: Nationwide Footprint 6 Regional offices with 13 Back Offices 158 Marketing Offices covering more than 450 locations 7,852 Home Loan Agents - Recruited from LIC, provide access to LIC policy holders network 10,000 LIC is largest insurance provider in India- over 233 Mn policies 1,484 Direct Sales Agents Recruited from Chartered Accounting Firms, Investment Advisors, etc 785 Customer Relationship Agents Additional marketing coverage by leveraging 14 branch offices of LIC HFL Financial Services- 100% Subsidiary company marketing financial products:- loans, credit cards, insurance & mutual funds Offshore offices in Dubai & Kuwait 8,000 6,000 4,000 2,000 0 Contribution to Incremental Disbursements- FY 09 HLA - Home Loan Agents DSA - Direct Sales Agents CRA - Customer Relationship Agents Extensive Ramp Up in Delivery Mechanisms 860 3, HLA DSA CRA 934 4, CRAs DSAs 6.8% 25.0% 1,352 7,085 Other 3.7% 777 HLAs 64.5% 1,484 7,852 FY07 FY08 FY 09 Q1 FY Mangalore Amritsar Kottayam Thiruvananthapuram Kollam Strong Pan India Presence Ludhiana Ambala Bhatinda Hisar Patiala Karnal Gurgaon Faridabad Jalandhar Hosur Mysore Vellore Hassan Salem Kannur Thrissur Coimbatore Erode Kozhikode Tiruchirapalli Palghat Ernakulam Madurai Nagercoil Noida Meerut Shimla Chandigarh Dehradun New Delhi Ghaziabad Pondicherry Thanjavur Tirumangalam Haldwani Chennai Corporate office Regional offices Back offices Operating offices Gangtok Bareilly Bikaner Siliguri Agra Gorakhpur Jaipur Jodhpur Kota Ajmer Lucknow Udaipur Malda Kanpur Patna Gwalior Varanasi Dhanbad Ahmedabad Behrampur Allahabad Ranchi Durgapur Gandhidham Bhopal Jamshedpur Kolkata Rajkot Vadodara Indore Jabalpur Rourkela Bilaspur Surat Jalgaon Nagpur Raipur Vapi Durg-Bhilai Cuttack Nallasopara Nasik Aurangabad Bhubaneshwar Kalyan Thane Warangal Mumbai Jogeshwari Visakapatnam Pune Hyderabad Rajahmundry Vashi Kolhapur Gulburga Vijayawada Satara Kurnool Belgaum Kakinada Anantapur Guntur Panjim Bellary Hubli Nellore Tirupati Bengaluru Jorhat Guwahati Silchar Multiple offices in certain cities Source:- Company Filings 7

9 LIC Housing Finance Ltd: Stringent Loan Approval Process Since incorporation, LIC HFL has provided loans to over 1 million customers, sanctioned loans aggregating to Rs 456,000 Mn & disbursed loans aggregating up to Rs 430,000 Mn (up to FY 09) Geographically diversified Loan Book East 6.1% All loans have benefit of collateral security over mortgaged property during the loan period Loan approval dept. is separate from loan marketing dept. Automated Score Card Model in place since 04 Eliminates human bias in determining loan application approval Once a loan has been evaluated by the respective credit approval officer, all proposals are referred to the appropriate approving authority for credit approval Source: Company Central 6.5% West 13.7% North 22.8% South 26.4% South Central 24.4% Limits are aggregated per borrower & affiliated borrowers & if exceeded, a loan proposal must be forwarded to the appropriate Table 1 - Loan Approval Limits authority with the requisite credit approval level (see Table 1) Recovery division of over 150 employees across the country Relationships with more than 700 Companies for loans to employees (see Table below) EMI through deduction from employee salary ~ Business through Tie-ups with Corporates FY07 FY08 FY09 % to Total retail sanctions by amount 33% 34% 40% Office/ Committee Back Office Regional Office Corporate Office Executive Committee Approval Authority Individual loans up to Rs. 6 Mn Individual loans up to Rs. 15 Mn Individual loans up to Rs. 30 Mn and project loans up to Rs. 50 Mn Individual loans above Rs. 30 Mn and project loans above Rs 50 Mn Source: Company Source: Company Filings 8

10 LIC Housing Finance Ltd: Increasing Asset Safety Measures leading to the improvement in asset quality Safe loan-to-value, EMI/Income & Residual income per person ratios Adoption of improved risk management processes Enhanced recovery procedures Effective use of SARFAESI Act Strengthened core IT operations for faster but stringent processing of applications & early detection of probable default loans Has reduced processing time & improved operating efficiency % Buyer Equity participation (lower LTVs) FY06 FY07 FY08 FY09 Focused customer profile leading to lesser defaults Employed 20% Over 50% salaried clients are PSU Employees Salaried 80% Diversified Ticket Size of Individual Loans 1 Mn & Above 26.5% 0.5 Mn to 1 Mn 23.6% Up to 0.5 Mn 41.2% Source: IDFC SSKI Research Buyer Equity participation (lower EMI/ income) % FY06 FY07 FY08 FY09 Source: IDFC SSKI Research Source: IDFC SSKI Research 9

11 LIC Housing Finance Ltd: Consistent Operating Performance LIC HFL s strategy to increase the average ticket size has worked successfully in the past few years Smaller ticket size loans are more prone to defaults Currently, ~ 60 % of LIC HFL s loans are originated from large cities (Mumbai, Delhi, NCR, Bangalore, Pune, Chennai, Hyderabad) where the loan size is typically higher. (Source: IDFC SSKI Research) Loan Book Dynamics: - 91% of the loan book pertains to retail customers only balance 9% is to large ticket customers i.e Developers Loans to developers are largely towards residential projects - LIC HFL does not engage in land funding to real estate developers Steady Improvement in Asset Quality Growth in Average Loan Size Rs (Mn) 1.40 Incremental FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 Source: Company & IDFC SSKI Research 10 Yr CAGR 17% Resulting in Continuous Increase in Net Profits 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 3.8% 3.8% 2.1% 2.1% 3.6% 2.0% 2.6% 1.3% Gross NPA 4.1% 2.8% 2.8% 2.1% 1.6% 1.6% Net NPA 2.2% 1.7% 1.2% 0.6% 1.8% 1.7% 1.51% 1.1% 0.9% 0.7% 0.65% 0.2% Rs (Mn) 6,000 5,000 4,000 3,000 2,000 1, ,786 Net profit RoE (%) , ,296 (%) % Q1 FY07 Q2 FY07 Q3 FY07 Q4 FY07 Q1 FY08 Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 0 FY07 FY08 FY09 Source:- Company Annual Filings. Consolidated Financials 0 Source: Company Quarterly Filings 10

12 LIC Housing Finance Ltd: Effective Borrowing Mix Primarily a wholesale funded institution with 82% funds coming from debentures and bank borrowings Strong parentage (40.8% owned by LIC) & highest credit rating (AAA) enables LIC HFL to source funds at competitive rates LIC HFL is a deposit - taking NBFC, but funding from deposits is currently less than 1% Additionally ~96% of assets are floating rate loans and 46% of liabilities are floating rate borrowings Asset Liability Committee reviews & controls liquidity risk management Effective Funding Mix (FY 09) Others NHB 6.8% 5.8% LIC 5.3% Bank 31.9% Deposits 0.6% NCD 49.6% Source:- Company Annual Filings 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9.6% 8.3% 2.5% Q4 FY07 Improving Metrics Quarter on Quarter 10.0% 8.6% 2.3% Q1 FY % 10.3% 10.5% 10.6% 11.3% 11.7% 11.2% 10.49% 8.9% 8.9% 9.5% 9.7% 9.2% 8.6% 8.6% 8.70% 3.2% Q2 FY08 2.9% Q3 FY08 3.2% Q4 FY08 2.7% Q1 FY09 2.9% Q2 FY09 3.2% Q3 FY09 3.2% Yield(on outstanding) Cost of Funds(on outstanding) NIM s (Qtrly) Source: Company Quarterly Filings Q4FY % Q1 FY10 Fund Source Banks Non Convertible Debentures LIC NHB Subordinated Bonds Deposits Other Interest Bearing Liability Miscellaneous Total Source: Company For the Year Ending FY % 8.91% 6.82% 7.26% 7.62% 6.50% 9.82% 6.45% 11

13 LIC Housing Finance Ltd: Hierarchy Structure Board of Directors Director & Chief Executive GM (Credit Appraisal & Project Finance) GM (Risk Management) & CFO GM (Marketing) GM (HR & Legal) GM (Investment & Tax) & CS GM (Accounts) GM (I.T) GM (Recovery) A.C.M. (Audit) Regional Manager (Northern Region) Regional Manager (Central Region) Regional Manager (Western Region) Regional Manager (Eastern Region) Regional Manager (Southern Region) Regional Manager (South/ Central Region) Officer incharge (Uttar Pradesh, Delhi, Rajasthan, Himachal Pradesh, Punjab and Haryana) Officer incharge (Uttar Pradesh, Madhya Pradesh, Chattisgarh and Uttaranchal) Officer in-charge (Maharashtra, Goa and Gujrat) Officer incharge (West Bengal, Jharkhand, Bihar, Orissa, Assam & Sikkim) Officer incharge (Tamil Nadu and Kerala) Officer incharge (Karnataka and Andhra Pradesh) Between 1 4 back offices under each Regional Manager, totaling to 13 back offices across India GM = General Manager CS = Company Secretary I.T = Information Technology 12

14 LIC Housing Finance Ltd: Future Strategy 1 Widen distribution channels and diversify assets 2 Maintain low cost diversified funding base 3 Maintain low cost operating structure 4 Focus on Continuous improvement in asset quality 5 Effective use of technology to further strengthen business processes 13

15 Contents A. Indian Housing Finance: Industry Dynamics B. LIC Housing Finance Ltd: Overview C. Competitive Strengths D. Key Management Personnel E. Financial Summary 14

16 LIC Housing Finance Ltd: Competitive Strengths Strong Brand Name & Parentage Extensive experience in Housing Finance Industry Robust Asset Quality- Consistent focus on low NPAs yielding higher RoAs Extensive Distribution Network & Customer Profile Mix Advantage Low Cost of funding & operating cost structure yielding High Profits & RoE Witnessing significant growth without compromising on quality with adequate risk management processes in place Exciting pure play story amongst large Indian HFCs 15

17 Contents A. Indian Housing Finance: Industry Dynamics B. LIC Housing Finance Ltd: Overview C. Competitive Strengths D. Key Management Personnel E. Financial Summary 16

18 LIC Housing Finance Ltd:- Key Management Personnel Mr R Ramachandran Nair- Director & Chief Executive Mr Nair has over 30 years of management experience across sub sectors of finance - Life Insurance, Mutual Fund and Housing Finance Mr Nair joined LIC of India in 1977 & has been holding various key positions in the corporation which include Branch Manager, Divisional Sales Manager, Deputy General Manager, Chief Manager, Senior Divisional Manager, Regional Manager, Zonal Manager, Director etc He was country Head of LIC of India, Mauritius during , Senior Divisional Manager, LIC, Ernakulam in , Regional Manager (Mktg.) of Southern Zone of LIC of India in and Zonal Manager in charge of all operations of LIC of India in southern States during , then till July 2007 he was deputed to establish a new JV Insurance Company at Riyadh as CEO During Aug 07 Apr 08, he was Director Management Development Center, LIC of India, Mumbai He joined LIC HFL as its CEO in April 2008 Mr Surinder Mohan Chief Financial Officer & General Manager Risk Management Mr. Mohan graduated in Commerce & is a Chartered Accountant. He has over 22 years of experience in different fields:- Life insurance, Marketing, Accounts, Finance & Risk Management He joined LIC of India in 1987 and has been holding various positions in the Corporation which include Administrative Officer, Senior Branch Manager & Marketing Manager He joined LIC HFL in April 2006 Mr. V. Chandrasekaran General Manager Credit Appraisal Mr Chandrasekaran is a Chartered Accountant & has over 24 years of experience in LIC of India He has worked in various financial departments within LIC & was Chief (Investment) in charge of Equity Market Operations & Equity Research in the FY 08. Mr Chandrasekaran joined LIC HFL in May 2008 Mr Nitin Jage - General Manager & Company Secretary Mr.Jage is a commerce graduate & holds a degree in Law He has over 25 years experience in the field of taxation, compliance, investment and legal He joined LIC HFL in March, 1995 in the cadre of Asst G. Manager & is presently handling Corporate Income tax, Service tax, Wealth tax, Public Deposits in addition to the other statutory duties of a Company Secretary 17

19 Contents A. Indian Housing Finance: Industry Dynamics B. LIC Housing Finance Ltd: Overview C. Competitive Strengths D. Key Management Personnel E. Financial Summary 18

20 LIC Housing Finance Ltd:- Key Financials Profit & Loss ( Rs Mn) FY 07 FY 08 FY 09 Operating Income 15,471 21,465 28,809 % Growth YoY 25% 39% 34% Other Income Total Income 15,752 21,728 29,031 % Growth YoY 24% 38% 34% Interest on Loans & other charges (Net) 11,013 14,829 20,166 Employees Emoluments & Benefits Establishment & Other Expenses ,056 Operating Profit 3,449 5,331 7,134 % Growth YoY 17% 55% 34% Provisions/Write offs Depreciation Prior Period Items (1) (1) (8) Profit Before Tax 3,532 5,313 7,244 Taxes 746 1,451 1,948 Profit After Taxes 2,786 3,862 5,296 % Growth YoY 34% 39% 37% 19

21 LIC Housing Finance Ltd:- Key Financials Balance Sheet ( Rs Mn) FY 07 FY 08 FY 09 Capital Reserves and Surplus 14,772 17,694 21,776 Total Shareholders Funds 15,622 18,544 22,626 Secured Loans 146, , ,240 Unsecured Loans 16,556 12,310 18,977 Total Loan Funds 163, , ,217 Total Capital Employed 178, , ,843 Net Block Capital Advances Housing Loans 175, , ,793 Investments 2,209 7,936 11,485 Deferred Tax Assets (Net) Sundry Debtors Cash and Bank Balances 7,807 3,660 1,378 Other Current Assets 1,177 1,498 2,044 Loans and Advances ,054 Current Liabilities 6,336 8,300 13,441 Current Provisions 2,810 3,592 3,905 Miscellaneous Total 178, , ,843 20

22 THANK YOU 21