 "LIC Housing Finance Ltd: Loan victor")
LIC Housing Finance (LICHFL) has reported good numbers for the September quarter. Net interest income at Rs 453 crore (up 28 per cent year-on-year or y-o-y) and net profit at Rs 310 crore (up 27.6 per cent) are in line with Street expectations. Net interest margin, the measure of profitability, inched 12 basis points y-o-y to 2.22 per cent.
“Lower exposure to bank borrowings and base rate increase could have arrested the sharp fall in margins. LICHFL is looking at steps like tapping the bond market to reduce its cost of funds. On net-net basis, margins would broadly remain range-bound. According to the last concall, 50 per cent of the floating book could be repriced in case of increase in lending rates by banks. This could also have aided in sustaining margins,” says Silky Jain, research analyst at Nirmal Bang Securities.
Sound asset quality, margin expansion and good net profit growth are the highlights.
After announcing the results on Wednesday, the stock jumped five per cent to Rs 219 against 0.5 per cent gains for the Sensex. It trades at 1.5 times FY14 estimated book value, above its historical average one-year forward price/book value ratio of 1.3 times, but lower than its peak valuations of over two times. Of the 14 brokerages polled by Bloomberg since September, 12 have a buy rating, while one each sell and hold.
Their average target price was Rs 232.
While immediate upsides may appear limited, analysts remain bullish on the scrip and advise buying on corrections.
Saday Sinha, vice-president, Kotak Securities, says: “We have a buy and expect earnings to grow at a 17 per cent CAGR (compounded annual growth rate) over FY13-15. The company has consistently maintained NPA (non-performing assets) below one per cent levels.” He has a target price of Rs 240.
For the quarter, loan book grew 20.4 per cent, driven by strong traction in individual loans (up 21.4 per cent). Developer loans fell 5.6 per cent. The loan growth was its lowest over eight to 10 quarters. The slowdown could have an impact on prospects.
The gross NPA ratio on individual segments improved to 0.46 per cent, down 15 basis points over the last year’s quarter. This, however, was more than offset by rising pressure on developer loans. As a result, the total gross NPA inched 13 basis points y-o-y to 0.73 per cent. Net NPA ratio, too, increased 16 basis points y-o-y to 0.44 per cent. However, given the figure is far from alarming and that individual segment forms 97 per cent of total loans (developers the rest), the risks to overall asset quality remain low. Other income grew 2.6 times to Rs 56 crore led by one-off gains of Rs 19 crore in the form of income tax refund. The company, though, used the opportunity to increase its provisioning for bad loans, which jumped five times to Rs 34 crore on a y-o-y basis. “Provisioning appears on the higher side because of low base effect in the September 2012 quarter. Sequentially, though, the provisioning was on similar lines,” adds Sinha of Kotak Securities.
“Lower exposure to bank borrowings and base rate increase could have arrested the sharp fall in margins. LICHFL is looking at steps like tapping the bond market to reduce its cost of funds. On net-net basis, margins would broadly remain range-bound. According to the last concall, 50 per cent of the floating book could be repriced in case of increase in lending rates by banks. This could also have aided in sustaining margins,” says Silky Jain, research analyst at Nirmal Bang Securities.
Sound asset quality, margin expansion and good net profit growth are the highlights.
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“In a very challenging business environment, we have been able to maintain good asset quality and improved profitability. For the full year, we expect loan book growth at 20 per cent, with some improvement in margins,” says V K Sharma, managing director and chief executive.
After announcing the results on Wednesday, the stock jumped five per cent to Rs 219 against 0.5 per cent gains for the Sensex. It trades at 1.5 times FY14 estimated book value, above its historical average one-year forward price/book value ratio of 1.3 times, but lower than its peak valuations of over two times. Of the 14 brokerages polled by Bloomberg since September, 12 have a buy rating, while one each sell and hold.
Their average target price was Rs 232.
While immediate upsides may appear limited, analysts remain bullish on the scrip and advise buying on corrections.
Saday Sinha, vice-president, Kotak Securities, says: “We have a buy and expect earnings to grow at a 17 per cent CAGR (compounded annual growth rate) over FY13-15. The company has consistently maintained NPA (non-performing assets) below one per cent levels.” He has a target price of Rs 240.
For the quarter, loan book grew 20.4 per cent, driven by strong traction in individual loans (up 21.4 per cent). Developer loans fell 5.6 per cent. The loan growth was its lowest over eight to 10 quarters. The slowdown could have an impact on prospects.
The gross NPA ratio on individual segments improved to 0.46 per cent, down 15 basis points over the last year’s quarter. This, however, was more than offset by rising pressure on developer loans. As a result, the total gross NPA inched 13 basis points y-o-y to 0.73 per cent. Net NPA ratio, too, increased 16 basis points y-o-y to 0.44 per cent. However, given the figure is far from alarming and that individual segment forms 97 per cent of total loans (developers the rest), the risks to overall asset quality remain low. Other income grew 2.6 times to Rs 56 crore led by one-off gains of Rs 19 crore in the form of income tax refund. The company, though, used the opportunity to increase its provisioning for bad loans, which jumped five times to Rs 34 crore on a y-o-y basis. “Provisioning appears on the higher side because of low base effect in the September 2012 quarter. Sequentially, though, the provisioning was on similar lines,” adds Sinha of Kotak Securities.