Re: {LONGTERMINVESTORS} Research Reports extracts & summaries - Thread

 LIC Housing Finance - Sharekhan

Reco: Buy
PT: Rs558
CMP: Rs463
 

Margins continue to improve; maintain Buy

 

Key points

• NII up 36.2% YoY aided by margin uptick: LIC Housing Finance Ltd (LICHFL) reported a healthy set of numbers for Q3FY2016 as net profit grew by 21.7% YoY. The operating performance remained strong as net interest income grew by 36.2% YoY, though higher opex (up 37.6% YoY) and rise in provisions (up 406% on a low base of Q3FY2015) to an extent affected growth in profit. The net interest margin improved both sequentially and YoY to 2.58% supported by consistent decline in borrowing cost (down 41BPS to 9.18 %), increase in proportion of high yielding loans and re-pricing of loans (fixed to floating rates). The reported spreads also improved to 2.10% vs 1.54% in Q3FY2015.
  
• Loan growth steady, asset quality holds: Overall, loan book registered a growth of 15.2% YoY with individual book growing by 15% and 20% growth in developer book. However, the overall disbursements growth moderated sequentially (10.3% vs 16.6% in Q2FY2016) while repayment rates increased slightly which affected loan book growth. The management expects disbursements to pick up in Q4FY2016 (targeting 15% disbursement growth for FY2016). Asset quality improved marginally on a Q-o-Q basis (gross NPAs in individual loan book at 0.58 %) and remained among the best in system. The provision coverage ratio (PCR) improved to 116%.
  
• Valuations: LICHFL continues to report strong performance at operating level, thanks to increase in margins. The company is among the key players in housing finance sector and has seen steady business growth despite the competition. We believe, increase in the proportion of non-individual loans and revival in mortgages will drive growth in earnings. We expect earnings to grow at a CAGR of 19.9% over FY2015-17 resulting in an RoA of 1.5%. We have maintained our Buy rating on the stock with a price target of Rs558.

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