Q4 showed increasing share of high yielding non-individual portfolio that aided in NIM expansion (up 16 bps q-o-q at 2.5%). Headline asset quality also improved (GNPA ratio down 9 bps q-o-q at 0.78% and NNPA ratio at 0.43%). Consequently, LICHF reported PAT of Rs 5.4 bn (up 1.9% y-o-y), in line with our estimate. Loan growth remained stable at 15.1% y-o-y supported by 14.5% y-o-y growth in disbursements.
We expect NIM to see positive traction on increasing share of high yielding and floating rate loans (up from 47% in FY16 to current 74%), stable prepayment rate at ~11% and resolution of lumpy NPAs. Management guided for 15%+ loan growth in FY19 with stable margin and no incremental challenge on asset quality front. Capital position remains healthy and we do not expect any dilution in near term.
Q4FY18 highlights: (a) Loan portfolio grew 15.1% y-o-y to Rs 1.7 trn, given a sharp 47% y-o-y rise in developer loans while individual home loans (ex-LAP) grew by 11.3% y-o-y; (b) ticket sizes have witnessed marginal 10% increase over the last one year to Rs 2.3 mn, whereas the contribution from top 7 cities has remained constant at ~45%; (c) NIM increased by ~16 bps q-o-q to 2.49% owing to higher non-individual loan disbursements; (d) asset quality improved marginally with ~9 bps q-o-q improvement in GNPA ratio to 0.78% while individual GNPAs improved by 5 bps q-o-q to 0.42%; (e) expanding footprint – management has expanded its network across India with 249 offices and network of 12,500 agents. It intends to add another 23 offices in FY19.
Maintain BUY with TP of Rs 705 (2.2x FY20e ABV): LICHF has relatively underperformed its peers over the trailing 12 months due to weak margin and inability to recover from corporate NPAs. However, early signs of pricing power in home loans and increasing share of high-yielding portfolio provide comfort on the margin front. More so, some of the large ticket corporate NPAs are at advanced stages of resolution and may see recoveries in next few quarters. At CMP, the stock trades at 2x/1.7x FY19e/FY20e P/ABV of Rs 277/Rs320.