 "LIC Housing Finance: Focus on high margin products drives Q1")
LIC Housing Finance (LIC HF) posted better than expected results for the June quarter. Year-on-year (y-o-y) growth in net interest income by 30.2 per cent to Rs 659 crore was at a multi-quarter high and was fuelled by faster growth in interest income versus interest expense. Interest income was boosted by the company's focus on the high-yielding loans against the property segment, which grew 100 per cent in the quarter. Going forward, the company expects this segment to grow 75-100 per cent. Total loans swelled 18 per cent in the quarter and was led by equivalent growth in the individual segment. While developer loans grew at a muted six per cent, this trend is set to improve.
Sunita Sharma, managing director and CEO of LIC HF, says, "The March 2015 quarter witnessed 80 per cent growth in sanctions to developers, which will be disbursed in the September 2015 quarter and boost the overall growth of developer loans." She remains confident of achieving 19-20 per cent loan growth in the current financial year and expects individual home and developer loans to grow 20-25 per cent each in FY16.
In the quarter gone by, LIC HF's net profit stood at Rs 382 crore, up 18.6 per cent year-on-year and was two per cent ahead of Bloomberg consensus estimate of Rs 375 crore. This figure could have been higher, but for the sharp rise in provisions both y-o-y (up 384 per cent) as well as sequentially (up 329.7 per cent) to Rs 44 crore. The company attributes this spike in provisions to the low base of the June 2014 quarter, wherein provisions of Rs 40 crore were reversed. These reversals continued till the March 2014 quarter and, hence, led to a low base in FY15.
LIC HF's net interest margins grew 22 bps y-o-y to 2.4 per cent on account of lower cost of borrowings. However, given a higher base (due to accumulation of full year earnings), sequentially this metric fell slightly by six basis points. The company expects this number to improve as it continues to focus on growing high-yielding products.
Most analysts remain positive on the LIC HF scrip. At Tuesday’s closing price of Rs 465 a share, the scrip trades at 2.6 times FY16 estimated book value and appears fairly valued for now.
Sunita Sharma, managing director and CEO of LIC HF, says, "The March 2015 quarter witnessed 80 per cent growth in sanctions to developers, which will be disbursed in the September 2015 quarter and boost the overall growth of developer loans." She remains confident of achieving 19-20 per cent loan growth in the current financial year and expects individual home and developer loans to grow 20-25 per cent each in FY16.
In the quarter gone by, LIC HF's net profit stood at Rs 382 crore, up 18.6 per cent year-on-year and was two per cent ahead of Bloomberg consensus estimate of Rs 375 crore. This figure could have been higher, but for the sharp rise in provisions both y-o-y (up 384 per cent) as well as sequentially (up 329.7 per cent) to Rs 44 crore. The company attributes this spike in provisions to the low base of the June 2014 quarter, wherein provisions of Rs 40 crore were reversed. These reversals continued till the March 2014 quarter and, hence, led to a low base in FY15.
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A bit of a concern is that asset quality ratios, too, inched up sequentially. The gross non-performing assets (NPA) ratio grew 14 basis points (bps) sequentially to 0.6 per cent, while the net NPA ratio increased 11 bps sequentially to 0.33 per cent. Sequential uptick in gross NPAs in the individual segment by 12 bps to 0.36 per cent appears to be one pressure point. However, these numbers were lower than the year-ago period. Some part of the uptick in gross NPA ratio is seasonal given that the firm implements transfers, promotions, etc in May every year leading to delays in business activities. The company, however, is confident of improving its asset quality going forward.
LIC HF's net interest margins grew 22 bps y-o-y to 2.4 per cent on account of lower cost of borrowings. However, given a higher base (due to accumulation of full year earnings), sequentially this metric fell slightly by six basis points. The company expects this number to improve as it continues to focus on growing high-yielding products.
Most analysts remain positive on the LIC HF scrip. At Tuesday’s closing price of Rs 465 a share, the scrip trades at 2.6 times FY16 estimated book value and appears fairly valued for now.