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RESULTS REVIEW 3QFY19 31 JAN 2019
LIC Housing Finance
BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Unutilised opportunity 3Q was yet again a mixed bag for LICHF. While yields and spreads registered a commendable increase of ~21 and ~6bps respectively, QoQ, NIMs were flat QoQ at ~2.33%. Disbursals dipped ~11% QoQ, weighed down by lower project disbursals as individual disbursals (home loan +LAP) were flat, a mild disappointment.
The steady rise in individual GNPAs (+19% QoQ vs. 3% in 2Q and x2 in 1Q) is disconcerting and needs to be closely monitored. The dip in project GNPAs (-23% QoQ) on a/c of higher recoveries and lower slippages was the silver lining.
We believe that the co missed out on the opportunity to capitalise on waning competition from other HFCs. LICHF’s ability to improve individual home loan growth, maintain margins and improve asset quality here on, is to be watched. Valuations are undemanding at 1.4xFY20E. Maintain BUY with a TP of Rs 527 (1.5x Dec-20E ABV of Rs 351).
Highlights of the quarter The rising share of the high yielding non-core book
(~23%, +60bps QoQ) and floating loans (~93% vs. ~82% QoQ) along with a 60bps rise in lending rates drove yields higher (+21bps QoQ). As expected, the 15bps rise in CoF was slower vs. peers. With this, the NIMs were stable, sequentially. Having sailed through the liquidity squeeze, along with rising yields, we expect NIMs to have bottomed out. We have factored NIMs of 2.5% over FY19-21E.
Disappointingly, individual disbursals were muted (+2% QoQ); further, with a 58% plunge in project disbursals, overall disbursal dipped ~11% QoQ. The stagnant pre-payment rate at ~10.4% in the individual segment is surprising, given the reduction in competition, contrary to mgt commentary. We believe, with lower competition from other HFCs, the core book can grow faster. We have factored in an AUM CAGR of 15.5%.
Near-term outlook: The stock should remain range bound, given the muted performance.
FINANCIAL SUMMARY (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) FY18 FY19E FY20E FY21E Net Interest Income 10,843 7,637 42.0 10,492 3.3 38,350 44,831 51,360 59,616 PPOP 8,565 6,976 22.8 8,347 2.6 33,007 39,861 45,798 53,175 PAT 5,963 4,751 25.5 5,731 4.1 19,896 23,944 26,809 30,357 EPS (Rs) 11.8 9.4 25.5 11.4 4.1 39.4 47.4 53.1 60.1 ROAE (%)
16.7 17.5 17.1 16.8
ROAA (%)
1.23 1.30 1.27 1.24 Adj. BVPS (Rs)
237 265 312 364
P/ABV (x)
1.90 1.70 1.44 1.24 P/E (x)
11.4 9.5 8.5 7.5
Source: Company, HDFC sec Inst Research
INDUSTRY NBFCs
CMP (as on 31 Jan 2019) Rs 450
Target Price Rs 527
Nifty 10,831
Sensex 36,257
KEY STOCK DATA
Bloomberg LICHF IN
No. of Shares (mn) 505
MCap (Rs bn) / ($ mn) 227/3,182
6m avg traded value (Rs mn) 1,070
STOCK PERFORMANCE (%)
52 Week high / low Rs 584/388
3M 6M 12M
Absolute (%) 9.2 (15.2) (16.1)
Relative (%) 3.9 (11.6) (16.9)
SHAREHOLDING PATTERN (%)
Promoters 40.31
FIs & Local MFs 10.94
FPIs 34.97
Public & Others 13.78
Source : BSE
Darpin Shah [email protected] +91-22-6171-7328
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 2
While the GNPAs were flat QoQ (~Rs 22.7bn, 1.26%),
the continued rise in individual GNPAs (19% QoQ,
after a 3% QoQ in 2Q and 2x in 1Q) was a negative
surprise, given the higher proportion of salaried
borrowers (85%). The sustained rise in individual
GNPAs, although not too serious at this juncture, is
disconcerting. However, with recoveries from 5-6
project loans, project GNPAs dipped ~23% QoQ. In
the current liquidity environment, the slippage of
lumpy developer a/cs must be monitored, although
the mgt is confident on the quality of the developer
book.
LICHF wrote-back provisions of ~Rs 31mn in 3Q vs.
provisions of ~Rs 894mn in 2Q. Consequently, the
coverage plunged to ~32% from 52% QoQ and NNPAs
increased ~24bps sequentially to ~85bps.
LICHF booked losses of ~Rs 149.3mn over 9MFY19 vs.
~Rs 1.6bn over 3QFY18 in interest income relating to
modification in the terms of loans. This is the first
time the management has disclosed the same.
P/ABV Band Chart
Source: Bank, HDFC sec Inst Research
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LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 3
Five Quarters At A Glance (Rs mn) 3QFY18* 4QFY18 1QFY19* 2QFY19* 3QFY19* YoY Growth QoQ Growth
Net Interest Income 7,637 10,036 10,223 10,492 10,843 42.0% 3.3%
Non-Interest Income 392 875 320 206 251 -36.0% 21.7%
Operating income 8,028 10,911 10,543 10,698 11,093 38.2% 3.7%
Operating expenses 1,053 2,242 769 2,351 2,529 140.2% 7.5%
Pre provision profits 6,976 8,669 9,775 8,347 8,565 22.8% 2.6%
Provisions and contingencies (205) 281 1,608 894 (31) -84.6% -103.5%
PBT 7,180 8,387 8,167 7,453 8,596 19.7% 15.3%
Provision for Tax 2,429 2,994 2,205 1,722 2,633 8.4% 52.9%
PAT 4,751 5,393 5,962 5,731 5,963 25.5% 4.1%
Balance Sheet items
Disbursements (Rs bn) 123.0 174.0 95.9 142.7 127.8 3.9% -10.5%
Individual (Rs bn) 113.2 151.4 87.0 113.2 115.4 1.9% 1.9%
Projects (Rs bn) 9.8 22.7 8.9 29.5 12.4 26.6% -58.0%
Loan Book (Rs bn) 1,561.8 1,663.6 1,686.5 1,759.5 1,817.0 16.3% 3.3%
Individual (Rs bn) 1,499.9 1,582.7 1,602.7 1,651.0 1,703.3 13.6% 3.2%
Projects (Rs bn) 61.9 80.9 83.9 108.5 113.7 83.6% 4.7%
Borrowings (Rs bn) 1,376.3 1,453.4 1,477.4 1,544.5 1,602.9 16.5% 3.8%
Profitability
Yield on advances (%) 10.18 10.12 10.19 10.24 10.45 27 bps 21 bps
Cost of Funds (%) 8.32 8.31 8.29 8.30 8.45 13 bps 15 bps
Spreads 1.86 1.81 1.90 1.94 2.00 14 bps 6 bps
NIM (%) 2.33 2.49 2.34 2.35 2.33 0 bps -2 bps
Cost-Income ratio (%) 13.1 20.5 7.3 22.0 22.8 968 bps 82 bps
Tax rate (%) 33.8 35.7 27.0 23.1 30.6 -320 bps 753 bps
Asset quality
Gross NPA 14,212 13,040 20,407 22,346 22,712 67.0% 1.6%
Net NPA 6,066 7,120 13,883 10,649 15,444 93.3% 45.0%
Gross NPAs (%) 0.87 0.78 1.21 1.20 1.26 39 bps 6 bps
Net NPAs (%) 0.49 0.43 0.82 0.61 0.85 36 bps 24 bps
Coverage ratio (%) 0.47 0.42 0.81 0.81 0.93 46 bps 12 bps
Individual GNPA (%) 41.3 45.4 32.0 52.3 32.0 -925 bps -2034 bps
Source: HDFC sec Inst Research; Numbers for 3QFY18, 1QFY19, 2QFY19 and 3QFY19 are as per IND AS
Change In Estimates
Rs mn FY19E FY20E FY21E
Old New Change Old New Change Old New Change
NII 44,608.8 44,831.1 0.5 50,348.5 51,359.6 2.0 57,741.5 59,616.1 3.2
PPOP 41,556.5 39,860.8 (4.1) 46,455.9 45,798.1 (1.4) 53,224.2 53,175.5 (0.1)
PAT 23,881.5 23,944.3 0.3 26,560.6 26,809.3 0.9 30,391.1 30,357.3 (0.1)
Adj. BVPS (Rs) 272.5 264.6 (2.9) 317.9 312.4 (1.7) 369.1 364.2 (1.3)
Slightly higher than estimates, led by AUM growth of ~16/3% while NIMs were flat YoY/QoQ
Net off losses of ~Rs 149.3mn on the modification of loans over 9MFY19
The share of the non-core portfolio increased ~60bps QoQ to ~23%
Led by a ~46/7% YoY/QoQ growth in LAP disbursals
The share of NCDs and retail deposits increased while those of bank borrowings and NHB refinance fell
Led by the rising share of high yielding loans and a 60bps increase in lending rates (FYTD)
Individual GNPAs increased ~19% QoQ while project GNPAs dipped ~23% QoQ
Higher vs. estimates led by provisions reversals
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 4
Disbursals down ~11% Sequentially Individual Disbursements up ~2% QoQ
Source: Company Source: Company
Project Disbursals Down ~58% QoQ Disbursal Break-up
Source: Company Source: Company
Disbursal dipped ~11% QoQ (+4% YoY) after rising ~49% QoQ in 2Q Individual disbursals grew ~2% YoY & QoQ Disbursals break-up: -Individual Home Loans (~Rs 92bn) -LAP (~Rs 2.37bn) -Project Loans (~Rs 12.4bn) After growing rapidly in 2Q, project disbursals were down ~58% QoQ Project disbursals were towards ~7 a/cs vs. ~33 a/cs QoQ The share of project disbursals dipped sharply to ~10% vs. 21% QoQ The average ticket size of incremental home loans YTD was ~Rs 23mn The average prepayment rates have marginally fell ~30bps to ~10.4% QoQ The mgt guided for disbursal of ~Rs 120bn in individual segment
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Individual Disbursements (LHS) YoY QoQ
%Rs bn
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Project Disbursements - LHS YoY QoQ
%Rs bn
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Individual Project
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 5
Loans grew ~16/3% YoY/QoQ Individual Loans Grew ~3% QoQ
Source: Company Source: Company
Project Loans Grew ~5% QoQ Loan Break Up: Share of LAP inches Up
Source: Company Source: Company
The Loan book grew ~16/3% YoY/QoQ to ~Rs 1.82tn Individual Loans grew ~14/3% YoY/QoQ to ~Rs 1.7trn (~93% of the book) Project Loans grew ~84/4% YoY/QoQ albeit on a smaller base Within Individual Loans, LAP grew ~46/7% YoY/QoQ to Rs 300bn The share of the non-core portfolio grew ~60bps QoQ to ~23% driven by an increase in the share of the LAP portfolio ~93% of the individual home loan portfolio is linked to the PLR
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Project Loans - LHS YoY QoQ
%Rs bn
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Individual Project LAP
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 6
NIM: Flat Sequentially Borrowing Mix: Share of NCDs rises
Source: Company Source: Company
Provision Write-Backs in 3Q Asset Quality Stable QoQ
Source: Company Source: Company; 1Q/2Q/3QFY18, 1Q/2Q/3QFY19 are as per IND AS
NIMs were sequentially flat at ~2.33% in spite of a ~6bps increase in spreads Funds raised during the qtr: -NCDs (~Rs 200bn) -CPs (~Rs 90bn) -Retail Deposits (~Rs 10bn) Individual GNPAs grew 2x/19% YoY/QoQ while project GNPAs dipped ~23% QoQ (+5% YoY) Write-backs during the qtr were ~Rs 31mn vs. ~Rs 894mn of provisions in 2Q As a result of provision write-backs during the qtr, the PCR dipped to ~32% vs. ~52% QoQ and NNPAs increased ~93/45% YoY/QoQ
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Banks NCD Retail Dep NHB others
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Provisions - LHS % of Avg Loans
Rs mn %
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GNPA (Rs mn) NNPA (Rs mn)
GNPA (%) NNPA (%)
Rs mn %
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 7
Peer Set Comparison
NBFC MCap
(Rs bn) CMP (Rs)
Rating TP
(Rs)
ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)
FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E
MMFS# 249 406 BUY 498 143 159 180 16.7 13.6 11.9 2.72 2.45 2.26 14.5 16.0 17.1 2.40 2.50 2.54
SHTF 231 1,017 BUY 1,486 566 669 765 10.0 8.3 7.3 1.80 1.52 1.33 17.1 17.8 17.7 2.45 2.54 2.46
CIFC 183 1,170 BUY 1,611 353 431 517 15.7 13.0 11.0 3.31 2.71 2.26 20.6 20.7 20.5 2.50 2.40 2.45
LICHF 227 450 BUY 527 265 312 364 9.5 8.5 7.5 1.70 1.44 1.24 17.5 17.1 16.8 1.30 1.27 1.24
REPCO 25 400 BUY 583 223 262 303 10.4 9.4 8.3 1.79 1.53 1.32 16.8 15.9 15.6 2.27 2.20 2.19
Source: Company, HDFC sec Inst Research;
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 8
Income Statement
(Rs mn) FY17 FY18 FY19E FY20E FY21E
Interest Earned 139,869 149,597 176,536 207,280 243,085
Interest Expended 102,315 111,247 131,705 155,920 183,469
Net Interest Income 37,555 38,350 44,831 51,360 59,616
Other Income 934 1,132 1,918 2,224 2,562
Total Income 38,489 39,483 46,749 53,584 62,178
Total Operating Exp 6,118 6,475 6,888 7,786 9,003
Employee Expense 2,458 2,175 2,239 2,589 2,991
PPOP 32,371 33,007 39,861 45,798 53,175
Provisions 2,813 2,389 3,582 5,178 7,180
PBT 29,558 30,619 36,279 40,620 45,996
Provision For Tax 10,247 10,723 12,335 13,811 15,639
PAT 19,311 19,896 23,944 26,809 30,357
Source: Company, HDFC sec Inst Research
Balance Sheet
(Rs mn) FY17 FY18 FY19E FY20E FY21E
SOURCES OF FUNDS
Share Capital 1,010 1,010 1,010 1,010 1,010
Reserves And Surplus 109,760 125,897 145,242 166,901 191,427
Shareholders’ Funds 110,770 126,907 146,252 167,911 192,437
Total Borrowings 1,263,350 1,453,390 1,675,102 1,942,659 2,241,499
Other Liab, Provisions 134,885 138,223 135,042 153,014 193,818
Total Liabilities 1,509,006 1,718,520 1,956,395 2,263,584 2,627,754
APPLICATION OF FUNDS
Advances 1,447,565 1,663,630 1,917,991 2,224,344 2,562,033
Investments 5,270 9,868 4,062 4,696 5,460
Fixed assets 965 971 1,020 1,071 1,124
Cash & Bank Balance 44,633 29,535 19,299 17,031 39,962
Other Assets 10,572 14,516 14,023 16,442 19,174
Total assets 1,509,006 1,718,520 1,956,395 2,263,584 2,627,754
Source: Company, HDFC sec Inst Research
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
Page | 9
Key Ratios
FY17 FY18 FY19E FY20E FY21E
VALUATION RATIOS
EPS (Rs.) 38.2 39.4 47.4 53.1 60.1
Earnings Growth (%) 16.3 3.0 20.3 12.0 13.2
BVPS (Rs.) 219.4 251.3 289.6 332.5 381.1
Adj. BVPS (100% cover) (Rs.) 215.1 237.2 264.6 312.4 364.2
ROAA (%) 1.37 1.23 1.30 1.27 1.24
ROAE (%) 19.1 16.7 17.5 17.1 16.8
P/E (x) 11.8 11.4 9.5 8.5 7.5
P/ABV (x) 2.09 1.90 1.70 1.44 1.24
P/PPOP (x) 7.0 6.9 5.7 5.0 4.3
Dividend Yield (%) 1.4 1.5 1.7 1.9 2.1
PROFITABILITY
Yield On Advances (%) 10.36 9.62 9.86 10.01 10.16
Cost Of Funds (%) 8.44 8.19 8.42 8.62 8.77
Spread (%) 1.92 1.43 1.44 1.39 1.39
NIM (%) 2.78 2.47 2.50 2.48 2.49
OPERATING EFFICIENCY
Cost/Avg. Asset Ratio (%) 0.44 0.40 0.37 0.37 0.37
Cost-Income Ratio 15.89 16.40 14.73 14.53 14.48
BALANCE SHEET STRUCTURE RATIOS
Loan Growth (%) 15.51 14.93 15.29 15.97 15.18
Borrowing Growth (%) 8.83 15.04 15.25 15.97 15.38
Equity/Assets (%) 7.34 7.38 7.48 7.42 7.32
Equity/Loans (%) 7.65 7.63 7.63 7.55 7.51
Total CRAR (%) 16.64 16.39 16.28 15.90 15.47
Tier I (%) 13.99 14.07 14.24 14.13 13.95
FY17 FY18 FY19E FY20E FY21E
ASSET QUALITY
Gross NPLs (Rs mn) 6,271 13,040 21,065 22,209 25,581
Net NPLs (Rs mn) 2,134 7,120 12,638 10,158 8,504
Gross NPLs (%) 0.45 0.78 1.10 1.00 1.00
Net NPLs (%) 0.15 0.43 0.66 0.46 0.33
Coverage Ratio (%) 66.0 45.4 40.0 54.3 66.8
Provision/Avg. Loans (%) 0.21 0.15 0.20 0.25 0.30
RoAA TREE (%)
Net Interest Income 2.67% 2.38% 2.44% 2.43% 2.44%
Non Interest Income 0.07% 0.07% 0.10% 0.11% 0.10%
Operating Cost 0.44% 0.40% 0.37% 0.37% 0.37%
Provisions 0.20% 0.15% 0.19% 0.25% 0.29%
Tax 0.73% 0.66% 0.67% 0.65% 0.64%
ROAA 1.37% 1.23% 1.30% 1.27% 1.24%
Leverage (x) 13.9 13.6 13.5 13.4 13.6
ROAE 19.1% 16.7% 17.5% 17.1% 16.8%
Source: Company, HDFC sec Inst Research
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target
9-Jan-18 571 BUY 675
29-Jan-18 548 BUY 655
10-Apr-18 561 BUY 655
25-Apr-18 547 BUY 636
6-Jul-18 476 BUY 636
27-Aug-18 530 BUY 627
9-Oct-18 397 BUY 592
30-Oct-18 406 BUY 515
8-Jan-19 479 BUY 534
15-Jan-19 478 BUY 534
31-Jan-19 450 BUY 527
RECOMMENDATION HISTORY
350
400
450
500
550
600
650
700
750
800
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-1
8
Jan
-19
LIC Housing Finance TP
LIC HOUSING FINANCE : RESULTS REVIEW 3QFY19
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