Ashika Monthly Insight August 2016

STRONG ON CONSUMPTION
is expected that conversion of dual rate loans into high
rate floating rates, low cost borrowing through issue of
NCDs and wholesale deposits and gradually increasing of
LAP book would improve NIMs of LICHF from FY16 level.
Strong asset quality
The asset quality of housing finance sector generally
stays benign as major portion of the loan is lend to
individual salaried class people. The gross NPA ratio for
the industry is ~0.8% while LICHF’s Q1FY17 ratio is
below industry levels at 0.59% with absolute GNPA at Rs
757 crore. This is due to bulk of the exposure to the
salaried class (~85% of retail book), better underwriting
standards and lower LTV (loan to value). In the past two
years, it has witnessed some stress in asset quality largely
in the developer loan space. However, management stated
that these accounts are well collateralized with asset
coverage of ~2x wit recovery process is on and resolution
could come in next 2 to 3 quarters. During Q1FY17, the
company made a provision of Rs 92 crore on account of
ageing of old project loan, which had already been classified
as NPAs. As LICHF lend 88% of its loan book to individual
salaried class people, it would be able to maintain strong
asset quality despite slow recovery in economy.
Steady 1QFY17 Result
LICHF has posted steady 1QFY17 result where Net
interest income grew 25% yoy at Rs 825 crore. NIMs
came strong at 2.61%, an increase of 20 bps yoy due to
change in loan mix towards high yielding assets like LAP
and developer loan and low cost of fund. Advance grew
by 15.4% yoy led by 15% yoy growth in individual loan
and 39% yoy growth in developer loan. However PAT
growth was low at 7% yoy at Rs 408 crore, mainly due to
one-time provisions of Rs 92 crore on account of ageing
of old project loan, which had already been classified as
150,000
130,000
110,000
90,000
70,000
50,000
30,000
10,000
Loan book growth
20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%
NPAs. Gross NPA ratio during the quarter remained industry
low at 0.59%. Improving domestic macros and revival in loan
market would lead LICHF to report strong quarter going
ahead.
Key Risks
•
•
Slowdown in economy could deter asset quality of its
developer loan segment, though its share is low in
overall portfolio.
If the company is unable to borrow low cost of funds
due to elevated interest rate regime, it could put
stress on its net interest margins.
Valuation
LICHF is the second largest Housing finance company after
HDFC with loan book of more than Rs 1 lakh crore and
would be benefited from stable growth in India’s mortgage
market. It has witnessed strong loan book growth over the
years which is above the industry average growth.
However, NIMs have declined since FY10, but LICHF have
been striving to revive that by increasing the share of LAP
and developer loan and borrowing through NCDs and
deposits which would reduce its cost of funds.
Government’s approval of 7th pay commission would yield
positive for housing finance companies as it would
increase the disposable income for government employees
which in turn would boost the housing demand. On asset
quality front, LICHF has done a commendable job by
maintaining it below industry average. We have a positive
view on the stock, given its strong position in housing
finance market, trusted brand name, healthy loan book
growth and superior asset quality. Hence we recommend
our investor to BUY the scrip with target price of Rs 608
from 12-18 months perspective. The scrip is currently
valued at P/Bv multiple of 2.0x on FY18E BVPS Rs 253.6.
FY14
Q1FY15
Q2FY15
Q3FY15
FY15
Q1FY16
Q2FY16
Q3FY16
FY16
Q1FY17
Loans (Rs crs)
Growth (RHS)%
Source: Company data
13