Maintain ‘buy’ on LIC Housing Finance, revised target R665

By: | Published: October 22, 2016 6:05 AM

LIC Housing Finance’s (LICHF) Q2FY17 PAT, at Rs 4.95 billion (up 20% y-o-y), was better than our estimates on improved NIMs (up 7bps q-o-q). While overall disbursements were below trend (up <10% y-o-y), the quarter saw conscious slowdown in LAP/LRD/projects segment, with retail home loan clocking 13% y-o-y growth. However, lower repayments (albeit elevated) supported y-o-y loan growth of 15%. Asset quality was stable with GNPLs at 0.57% (0.59% in Q1FY17) and credit cost was contained at Rs 300 millionn (after the blip in Q1FY17 on ageing). While growth momentum is belowtrend, NIMs settling at higher levels provides comfort on earnings CAGR of >15% over FY16-18E and RoE of 19%.

Disbursements clocking <10% y-o-y growth was below trend and largely due toconscious slowdown in non-core segments (LAP growth flat y-o-y, project disbursement fell by >17% y-o-y). Disbursements in core home loans registered stable 13% y-o-y growth (albeit below trend), consequent to which share of self-employed segment fell to 16% (18% in Q1FY17).

Core mortgage segment profitability is under pressure, but tilt towards higher yielding loans (LAP/LRD/project) will aid NIMs. Further, asset quality risks are limited in core mortgage segment, increasing demand outside top-7 cities and ramp up of LAP & developer loans will support asset growth. The stock trades at 2.5x FY18E ABV. We maintain buy/sp with revised TP of Rs 665 (on 2.75x FY18E P/ABV; earlier Rs 603).

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