LICHF reported Q4 PAT of Rs 5.4 bn, flat y-o-y, in line with our estimates. AUM was in line, but NII was 2.5% ahead due to slightly better NIMs. This was offset by higher costs.
LICHF reported Q4 PAT of Rs 5.4 bn, flat y-o-y, in line with our estimates. AUM was in line, but NII was 2.5% ahead due to slightly better NIMs. This was offset by higher costs. Rising bond yields could weigh on incremental spreads, but recent PLR rate hike should lift overall portfolio yield and support better spreads in our view. We believe NIMs have bottomed out, but meaningful expansion is unlikely. At 1.9x FY19e BV, valuations appear reasonable. Maintain Hold.
Loan grew 15% YoY
Core home loan book grew 11.3% y-o-y while non-core loan grew 34% y-o-y project loan 46.9% y-o-y, LAP 30.8% y-o-y). Core home loan disbursal was steady at 14.3% y-o-y. LAP disbursal fell 4% y-o-y, but project loan disbursal jumped 84% y-o-y. Mix of non-core loans rose to 19.2% in Q4. LICHF should benefit from affordable housing push, but given its focus on salaried home loan segment, it may see higher competition from banks. We forecast loans to grow at 15.4% CAGR over FY18-20e.
NIMs better than expected
NIM rose 16bps q-o-q to 2.49%, but this appears to be mainly led by (i) lower leverage (est. 8-10 bps boost) and (ii) higher mix of non-core loans. Average portfolio spread fell 5 bps q-o-q to 1.81%. Incremental spread (2.25%), though higher vs. back book spread, fell 19 bps q-o-q due to higher funding costs. While incremental spreads could be under pressure due to rising bond yields, overall spreads should stabilise as (i) incremental spreads are higher vs. portfolio spread, (ii) back book has largely been re-priced and (iii) LIC has raised PLR rates by 20bps in April which should lift overall portfolio spreads. We forecast NIMs of 2.5% in FY19 and 2.55% in FY20e.
Cost to income higher than expected
Cost to income was 20.5%, up 225bps y-o-y. Employee cost rose 11% y-o-y. Other opex costs rose 15% y-o-y.
Stable asset quality
Q4 GNPA was 0.78% (-9bps q-o-q). Individual loans GNPLs was 0.42% (Q3 0.49%), but Project GNPA fell to 7.82% (9.54% Q3) due to recoveries in smaller accounts. Credit cost fell 5 bps q-o-q to 0.07% vs. our 0.12% estimate.
We lift FY19-20e EPS by 4/1% factoring in lower AUM, higher NIMs and higher costs. LICHF is trading at 1.9x FY19e BV. Our revised price target of Rs 600 based on RI model implies 2.1x FY19E BV. Key risks: slower loan growth, higher pressure on spreads, and higher asset quality issues.