4 Recommendation BUY In line results; asset quality improves CMP (27/4/215) Rs. 421 Target Price Rs. 518 Sector Stock Details Housing Finance BSE Code 5253 NSE Code Bloomberg Code LICHSGFIN LICF IN Market Cap (Rs cr) 21322 Free Float (%) 59.69% 52- wk HI/Lo (Rs) 59/254 Avg. volume BSE (Quarterly) 271,41 Face Value (Rs) 2. Dividend (FY 14) 25% Shares o/s (Crs) 5.5 Relative Performance 1Mth 3Mth 1Yr LIC Housing 2.% -11.7% 56.8% Sensex -2.4% -7.2% 2.9% 6 5 4 3 2 1 Shareholding Pattern 31 st Mar 15 Promoters Holding 4.31% Institutional (Incl. FII) 42.45% Corporate Bodies 4.62% Public & others 12.62% Silky Jain Research Analyst (22 3926 8178) silky.jain@nirmalbang.com LIC Housing Finance (LICHF) reported results broadly in line with expectations with improvement in net interest income. However, higher operating expenses and higher provisions impacted bottom line performance. In addition higher tax on account of DTL resulted in mere 2.2% YoY increase in PAT. For FY15, PAT increased 5.2% YoY. Loan growth stood at 18.6% YoY while disbursements witnessed pick up at 23.2% growth. Margins improved both sequentially and YoY led by lower cost of funds and stable yield on advances. Higher dependence on NCDs and reducing reliance on bank borrowings further aided in margin improvement. On asset quality front, retail book NPA continued to witness improvement while developer book remained stable. Of the current substandard category, management is hopeful of recovery in one account by H1FY16E. Management intends to grow at around 2% for FY16E with focus on LAP. LAP currently contributes 4.6% of the total loan book. We expect loan book to witness CAGR of 18.4% for FY15-17E on the back of increasing market share of the company. Staff costs were particularly high due to adverse actuarial assumptions (gratuity impact of Rs 4.5cr) and higher provisions on sick leaves (Rs 4.5 cr). In addition advertisement expenses stood at higher end thereby impacting cost to income ratio. LICHF took a provision charge in Q4FY15 vs provision release in Q4FY14 on the teaser rate portfolio leading to higher provisions. We expect margins to witness improvement in FY16E led by re-pricing of loan book, increasing share of higher yielding book (LAP and developer loan) and lower cost of funds (reducing bank borrowings). In addition; declining G-Sec rates are also likely to lower the funding cost of LICHF; thereby aiding in margin expansion. Volume growth continues to remain good; sanction pipeline in developer book provides further impetus to growth. However, margin enhancement is the key lever to improvement in earnings going forward. Scope of margin expansion, maintaining operational efficiency, stable asset quality, adequate capital adequacy ratio (Tier I @ 12.4%) continue to remain the key driver for the company s performance in the long term. We believe that LICHF is well placed to capitalize on the growth opportunities with increasing market share. Favorable industry dynamics like low mortgage penetration coupled with increasing affordability are likely to drive the housing demand going forward. We expect 17.3% CAGR in PAT for FY15-FY17E with RoA of 1.4% and RoE of 19.1% for FY17E. At CMP, the stock is trading at 2.4x FY16E and 2.3x FY17E ABV; 13.18x and 11.14x FY16E and FY17E EPS. Our target price of Rs 518 (2.5x FY17E ABV) implies an upside of 23.% from current levels and therefore we recommend BUY rating on the stock. Year NII (Rs cr) Growth (%) PBP (Rs cr) Growth (%) PAT (Rs cr) EPS (Rs) PE (x) Adj BVPS (Rs) P/ABV (x) FY 14A 1,899 23.7% 1,847 27.2% 1,317 26.1 16.13 142.2 2.96 18.8% FY 15A 2,236 17.8% 2,19 14.2% 1,386 27.47 15.33 15.2 2.8 19.8% FY 16E 2,689 2.2% 2,525 19.7% 1,612 31.93 13.18 175.4 2.4 19.% FY 17E 3,24 2.5% 3,15 19.4% 1,97 37.78 11.14 27.1 2.3 19.1% RoE 1 P a g e
Retail book drives loan growth LICHF loan book grew at 18.6% YoY and 6.3% QoQ to Rs 18,361 cr. Growth was driven by retail book particularly LAP. Retail book grew 19.3% YoY and 6.3% QoQ to Rs 99,362 cr. Developer/project/corporate loan book witnessed uptick and increased 5.8% QoQ; however declined on YoY basis due to higher repayments. Overall disbursements grew 23.2% YoY to Rs 9938 cr. 95, 9, 85, 8, 75, 7, 65, 6, 55, Loan book growth 18.6% 18.% 17.4% 16.8% 17.2% Loan book YoY growth 19.% 18.5% 18.% 17.5% 17.% 16.5% 16.% 15.5% The overall share of developer loan book continued to remain weak at mere 2.5% of total loan book. Management has not grown the developer loan book aggressively in the past given the asset quality pressures witnessed in this sector. However, from the last three quarters we have witnessed an uptick in the overall disbursements in the developer segment. 12.% 1.% Contribution to total loan 97.% 97.3% 97.5% 97.5% 97.5% 8.% 6.% 4.% 2.%.% 3.% 2.7% 2.5% 2.5% 2.5% Individual loan Developer loan Going forward, as per the management, loan book will continue to witness the growth momentum and the company is having a good sanction pipeline. Management aims to grow in line with industry trend at around 2% with focus towards increasing contribution from developer loans and LAP. Currently, LAP stands at 4.6% of the total book which the management intends to increase it going forward. We expect loan book to witness CAGR of 18.4% for FY15-17E. 2 P a g e
Disbursement Growth 12 3.% 1 8 6 16.8% 21.% 24.5% 23.2% 25.% 2.% 15.% 4 1.% 2 4.4% 5.%.% Disbursement YoY growth Margins witness sharp improvement NIMs improved sharply by 27 bps on sequential basis and 7 bps YoY to 2.47%. This was mainly led by decline in cost of funds by 29 bps QoQ to 9.2% while yields were stable. The total share of bank borrowings now stands at 17.6% compared to 24.7% as of 4QFY14. We expect margins to witness improvement in FY16E to 2.3% led by re-pricing of loan book, increasing share of higher yielding book (LAP and developer loan) and lower cost of funds (reducing bank borrowings). 2.6% Net interest margin 2.4% 2.47% 2.2% 2.% 2.4% 2.19% 2.23% 2.2% 1.8% Asset quality continue to remain strong Asset quality witnessed improvement during the quarter. Gross NPA stood at.46% in Q4FY15 while Net NPA stood at.22%. Gross NPAs in individual segment witnessed improvement on YoY and QoQ basis and stood at.24% (vs.33% in Q3FY15). Gross NPAs in the developer loan segment remained flat QoQ. Provision coverage ratio witnessed improvement and stood at 52.6%. The accounts which had slipped into NPA in the developer loan segment continue to remain sub standard during the quarter. Management expects recovery from one account in FY16E. 3 P a g e
.95%.85%.75%.65%.55%.45%.35%.25%.15%.5% -.5%.8% Asset quality.67%.63%.57%.49%.46%.39%.33%.31%.22% Gross NPA Net NPA The company reported total provisions of Rs 1.3 cr. Provision release in 4QFY14 on the teaser rate portfolio had resulted in the write-back in provisions whereas LICHF took a provision charge in 4QFY15. Provision coverage ratio stood at 52.6% for the quarter. 55.% 5.% Provision coverage ratio 48.2% 52.6% 45.% 45.4% 4.% 41.9% 39.3% 35.% 3.% 4 P a g e
Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Income Statement (Rs cr) Q4FY15 Q4FY14 YoY (%) Q3FY15 QoQ (%) FY15 FY14 YoY (%) Interest Earned 2,8 2,47 16.3% 2,668 5.% 1,547 9,73 16.2% Interest Expended 2,15 1,874 14.7% 2,119 1.5% 8,31 7,174 15.8% Net interest income 65 533 21.9% 549 18.5% 2,236 1,899 17.8% NIMs 2.47% 2.4% 2.2% 2.24% 2.25% Other income 6 71 (14.4%) 68 (11.2%) 252 261 (3.6%) Other income as % to total income 8.5% 11.7% 11.% 1.1% 12.1% Total income 71 64 17.7% 617 15.2% 2,488 2,16 15.2% Payment to employees 36 26 39.4% 36 (2.1%) 129 14 24.5% Other operating expenses 89 79 13.% 52 71.6% 25 29 19.3% Total operating expenses 125 14 19.4% 88 41.2% 379 313 21.1% Cost to income ratio 17.5% 17.3% 14.3% 15.2% 14.5% Profit before provisioning 586 499 17.3% 528 1.8% 2,19 1,847 14.2% Provisions 1.3-22.3 N/A 6.8 N/A 7 21 (66.2%) Profit before tax 575 522 1.3% 522 1.3% 2,12 1,826 15.1% Tax 167 152 9.9% 143 16.4% 585 58 15.1% 29% 29% 27% DTL 31 34 131 Profit after tax 378 37 2.2% 344 9.8% 1,386 1,317 5.2% EPS 7.5 7.3 2.2% 6.8 9.8% 27.5 26.1 5.2% Gross NPA.46%.67%.57%.46%.67% Net NPA.22%.39%.31%.22%.39% 1 9 8 7 6 5 4 3 2 1 P/BV- Forward 6 5 4 3 2 1 P/E- Forward Price.5x 1x 1.5x 2x 2.5x Price 3x 6x 9x 12x 15x 5 P a g e
Financials Profitability (Rs. Crs) FY13 FY14 FY15 FY16E FY17E Balance Sheet (Rs. Crs) FY13 FY14 FY15 FY16E FY17E Interest earned 7,459 9,73 1,547 12,536 14,728 Equity capital 11 11 11 11 11 Interest expended 5,925 7,174 8,31 9,847 11,487 Reserves and surplus 6,38 7,432 7,717 9,67 1,696 Net interest income 1,534 1,899 2,236 2,689 3,24 Net worth 6,481 7,533 7,818 9,168 1,797 Non interest income 2 261 252 281 39 Total Loans 7,18 82,28 97,417 1,15,731 1,35,637 Total income 1,734 2,16 2,488 2,97 3,549 Curr Liab 3,898 6,36 6,641 8,95 1,326 Payment to employees 9 14 129 153 183 Total liab and equity 8,56 95,777 1,11,876 1,32,993 1,56,759 Other op exp 191 29 25 292 351 Cash and bank bal 1,466 3,22 2,933 2,341 2,692 Total expenses 282 313 379 445 534 Investments 185 199 237 261 287 Profit before prov 1,452 1,847 2,19 2,525 3,15 Housing Loans 77,813 91,341 1,8,361 1,28,617 1,51,98 Provisions 79 21 7 83 126 Fixed assets 62 76 8 88 96 Profit before tax 1,374 1,826 2,12 2,442 2,889 Other current assets 613 738 815 859 96 Taxes 35 58 716 83 982 Other Long Term Assets 422 41 788 828 869 Net profit 1,23 1,317 1,386 1,612 1,97 Total assets 8,56 95,777 1,13,214 1,32,993 1,56,759 Quarterly (Rs. Crs) Mar.14 June.14 Sep.14 Dec.14 Mar.15 Key Ratios FY13 FY14 FY15 FY16E FY17E Net interest income 533 56 532 549 65 Non interest income 71 61 63 68 6 Yield Ratios Total income 64 567 594 617 71 Avg Yield on Loans 1.6% 1.7% 1.6% 1.6% 1.5% Operating expenses 14 7 96 88 125 Cost of Int Bearing Liab 9.4% 9.5% 9.3% 9.2% 9.1% Operating profit 499 497 498 528 586 Net interest spread 1.2% 1.3% 1.3% 1.3% 1.4% Provisions -22 9-19 7 1 Net interest margin 2.2% 2.2% 2.2% 2.3% 2.3% Profit before tax 522 488 517 522 575 Gross NPA.6%.7%.5%.6%.5% Taxes 152 134 142 143 167 Net NPA.4%.4%.2%.3%.3% DTL 32 34 34 31 Capital adequacy ratio 16.% 17.4% 16.5% 15.9% 15.1% Net profit 37 322 341 344 378 Profitability Ratios FY13 FY14 FY15 FY16E FY17E Per share data FY13 FY14 FY15 FY16E FY17E Cost / Income Ratio 16.3% 14.5% 15.2% 15.% 15.% EPS 2.28 26.1 27.47 31.93 37.78 Net profit margin 13.4% 14.1% 12.8% 12.6% 12.7% BVPS 128.3 149.2 154.8 181.5 213.8 RONW 16.8% 18.8% 19.8% 19.% 19.1% Adj BVPS 122.9 142.2 15.2 175.4 27.1 Return on Assets 1.47% 1.58% 1.54% 1.39% 1.42% DPS 3.8 4.5 5. 5.2 5.5 Growth Ratios FY13 FY14 FY15 FY16E FY17E Dividend yield.9% 1.1% 1.2% 1.2% 1.3% Advances growth 23.4% 17.4% 18.6% 18.7% 18.1% Borrowing growth 23.8% 18.4% 18.5% 18.8% 17.2% Valuation Ratios FY13 FY14 FY15 FY16E FY17E NII growth 1.3% 23.7% 17.8% 2.2% 2.5% P/E 2.76 16.13 15.33 13.18 11.14 PAT growth 11.9% 28.7% 5.2% 16.3% 18.3% P/BV 3.28 2.82 2.72 2.32 1.97 Pre prov profit growth 4.7% 27.2% 14.2% 19.7% 19.4% P/ABV 3.43 2.96 2.8 2.4 2.3 Non interest inc growth -14.% 3.8% -3.6% 11.5% 1.% 6 P a g e
NOTES Disclaimer: Nirmal Bang Securities Private Limited (hereinafter referred to as NBSPL )is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX stock Exchange Limited. NBSPL is in the process of making an application with SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, 214.NBSPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst (in case any financial interest is held kindly disclose).nbspl or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBSPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. This document, at best, represents Analyst opinion and is meant for general information only. NBSPL, its directors, officers or employees shall not in any way be responsible for the contents stated herein. NBSPL expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities Nirmal Bang Research (Division of Nirmal Bang Securities PVT LTD) B-2, 31/32, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-413 Board No. : 91 22 3926 8/81 Fax. : 22 3926 81 7 P a g e