LIC Housing Finance?s (LICHF) Q1FY14 performance was characterised by steady (22%) loan growth and improvement in net interest margins (2.3%). While rising interest rates will increase its borrowing cost, thereby raising concerns on its NIMs, large bond borrowings in Q1 (at low rates) and impending re-pricing of loan assets provide comfort.
We reduce NIM estimates to factor in 20-bps NIMs compression over the next few quarters. Despite reducing our target price to R240, we find significant upside after the recent sharp stock correction. We upgrade our rating to ?buy? with target of R240.
LICHF reported Q1FY14 profit before tax (before provisions) of R440 crore, up 27%, and 2% ahead of estimates.
High loan growth (22% y-o-y, 24% in the retail business) and marginal improvement in NIMs pushed net interest income (NII) by 30% to R450 crore. Gross non-performing loans increased to 0.8% from 0.6% in Q4FY13 ? in line with seasonal trends. Provisioning expenses were low at R17.1 crore (down 61% y-o-y) as slippages were lower on a q-o-q basis in Q1FY14 compared to Q1FY13. Consequently, PAT was up 36% y-o-y to R310 crore, 6% ahead of estimates.
LICHF?s loan growth was strong at 22% y-o-y. Individual loans increased 24% and disbursements grew 7% y-o-y. We expect LICHF to deliver 22% loan growth in FY14 estimates and 20% in FY15 estimates and FY16 estimates on the back of 18% CAGR in disbursements. The company delivered 21% disbursements growth in FY13, largely concentrated in Chennai, Western India (Maharashtra/Gujarat) and Bangalore.
Kotak Institutional Securities
