Result Update

February 15, 2013

Rating matrix
Rating Target Target Period Potential Upside : : : : Buy | 340 12 months 37%

LIC Housing Finance (LICHF)

| 248
WHATS CHANGED
PRICE TARGET .................................................................................................... Unchanged
FY14E 2010 1946 1337 FY15E 2550 2462 1724

Key Financials
| crore NII PPP PAT FY12 1392 1387 914 FY13E 1545 1483 999

EPS (FY14E) ............................................................................... Changed from 24.9 to 24.3 EPS (FY15E) ........................................................................................................Unchanged RATING ............................................................................................................... Unchanged

Valuation summary
FY12 Net Profit (| crore) EPS (|) Growth (%) P/E (x) Price / Book (x) ABV (Rs) Price / Adj Book (x) GNPA (%) NNPA (%) RoNA (%) RoE (%) 914.2 18.1 -11.8 13.7 2.3 110.9 2.2 0.4 0.1 1.5 18.6 FY13E 998.6 19.8 9.2 12.5 2.0 122.2 2.0 0.7 0.4 1.4 16.5 FY14E 1337.1 24.3 22.7 10.2 1.6 153.1 1.6 0.7 0.4 1.5 17.6 FY15E 1724.2 31.3 28.9 7.9 1.4 184.5 1.3 0.7 0.3 1.6 18.1

Retail doing well, developer witnesses stress

LIC Housing Finance (LICHF) reported PAT of | 236 crore (down 23% YoY) below our estimates mainly on account of higher-than-expected provisions (4.6x QoQ) against the write-back last year. The management attributed such higher provisions towards higher slippages in the developer segment, which are expected to be recovered in Q4FY13. Margins remained stable QoQ at 2.1% against the anticipation of an improvement owing to interest reversals of | 6 crore, which further kept profitability under pressure. However, growth in the loan portfolio remained strong at 24% YoY mainly led by individual loans. Developer proportion witnessed some improvement after eight straight quarters of decline. We have reduced our FY13E, FY14E PAT estimates by 9%, 3%, respectively, as we factor delayed improvement in NIMs. We continue to value the stock at 1.8x FY15E ABV with our TP of | 340. Maintain BUY. Strong loan growth maintained but asset quality witnesses pressure Disbursements during the quarter rose 27% YoY to | 6005 crore with more than 90% disbursed towards the individual portfolio. Traction in developer segment was also healthy with ~| 500 crore disbursement. Loan book grew 24% YoY to | 72704 crore. Developer proportion improved 10 bps QoQ to 3.9%. However, absolute GNPA increased by | 125 crore to | 538 crore owing to three developer accounts amounting to | 165 crore slipping into NPA. This led to lower yields in the developer segment, which, in turn, kept overall yields and margins stable QoQ. Expect margins to reach ~2.4% levels, going forward Reduced developer proportion coupled with a rising interest rate scenario in the system led to NIMs falling to 2.1% (down more than 100 bps in 18 months). During 9MFY13, the disbursement to developer loans have been subdued at ~| 940 crore. Going forward, the management has targeted disbursement of | 1200 crore in Q4FY13. This along with a decline in wholesale rates (LICHFs wholesale borrowings at ~68-70%) and repricing of teaser loans at higher rates will help enhance margins ahead. Risk of downside lower Expected capital infusion, rising developer proportion supporting margins, healthy demand for individual loans and steady asset quality leave little room for downside. Hence, we maintain the multiple of 1.8x FY15E ABV (three year average multiple at 1.9x) and our BUY rating.
Exhibit 1: Financial Performance
| Crore NII Total Income PBT PAT Q3FY13 369.7 419.6 320.5 236.2 Q3FY13E 387.0 441.9 364.4 266.0 Q3FY12 325.8 379.6 406.2 305.9 Q2FY13 353.5 407.3 332.4 243.1 YoY Gr(%) 13.5 10.5 -21.1 -22.8 QoQ Gr.(%) 4.6 3.0 -3.6 -2.8

Stock data
Market Capitalisation GNPA (Q3FY13) NNPA (Q3FY13) NIM (Q3FY13) 52 week H/L Equity capital Face value DII Holding (%) FII Holding (%) | 12520 crore | 538 crore | 328 crore 2.10% 300/228 | 101 crore |2 11.4 34.2

Price movement
7,500 6,000 4,500 3,000 Aug-12 Nov-12 Feb-12 May-12 Feb-13 350 300 250 200 150 100

LIC HF (R.H.S)

Nifty (L.H.S)

Analysts name
Kajal Gandhi kajal.gandhi@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Jaymin Trivedi jaymin.trivedi@icicisecurities.com

Source: Company Quarterly Presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Assumption Table

(Year-end March) Disbursements (% growth) Housing loans outstanding (% growth) Loan Mix -Individual loans (%) -Developer loans (%) Funding Mix -Bonds & Debentures (%) -Deposits (%) -Term loans (%) 62 5 34 70 5 25 69 6 25 68 7 25 95.0 5.0 95.8 4.2 95.2 4.8 94.5 5.5 FY12 9.2 23.5 FY13E 20.0 23.7 FY14E 18.4 21.3 FY15E 18.4 18.8

Source: Company, ICICIdirect.com Research

Exhibit 3: Loan book sustains healthy growth momentum at 24% YoY

80000 69119 72704 70000 58707 63080 60000 | Crore 51090 52876 50000 43385 40000 30000 20000 10000 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 46380 56098 65644

The outstanding loan book continues to grow at a healthy pace of 24% YoY. Traction in total disbursements stood at 27% YoY with disbursements in individual loans healthy at 21% YoY. Disbursement to the developer loan category stood at | 497 crore. As per the management, disbursements towards developers would continue to increase, going forward

Source: Company, ICICIdirect.com Research

Exhibit 4: Retail book maintaining growth of 27% YoY, developers loans witness pick up
100 10.5 90 80 (%) 70 60 50 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Retail Project Finance 89.5 88.7 89.5 91.5 92.4 93.0 94.0 95.0 95.4 96.2 96.1 11.3 10.5 7.6 7.0 6.0 5.0 4.6 3.8 3.9

8.5

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Exhibit 5: Margins flat QoQ, yields on developer loans under pressure owing to interest reversals
The management has guided NIMs will improve to 2.2% in Q4FY13 on the back of reduced base rates by banks, improvement in developer proportion and repricing of teaser loans

4 3.3 3.0 (%) 3 2.5 2.4 2.8 2.9 3.5 3.1 2.8 2.5 2.3 2.4 2.2 2.1 Q2FY13
FY15E

2.1 Q3FY13
30.0 25.0 20.0 15.0 10.0 5.0 0.0 (%)

2 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12
FY13E

NIM

Source: Company, ICICIdirect.com Research

Exhibit 6: Asset quality deteriorates on account of stress in developer portfolio

Asset quality witnessed a deterioration with absolute GNPA increasing by | 125 crore to | 538 crore and the GNPA ratio rising by 14 bps QoQ to 0.74% and the NNPA ratio rising by 17 bps to 0.45%

1.4

0.9
(%)

0.9 0.7 0.4 0.7 0.1

Q4FY11 Q1FY12

0.8 0.4 0.5 0.6 0.6 0.4 0.3 0.4 0.1 r 0.1

0.7

0.4

0.2

0.2

0.7 0.7 0.7 0.7 0.6 0.5 0.4 0.4 0.3 0.3

Q1FY11

Q2FY11

Q3FY11

Q2FY12

Q3FY12

Q1FY13

Q2FY13

Q3FY13

FY12

GNPA

NNPA

Source: Company, ICICIdirect.com Research

The management indicated that though the developer book witnessed asset quality pressure, the retail portfolio remained healthy with the GNPA ratio improving 10 bps QoQ to 0.52%. Of the total GNPA of | 538 crore, ~| 362 crore belonged to retail loans while the remaining | 176 crore were related to developer loans of which | 165 crore slipped during Q3FY13.
Exhibit 7: Expect return ratios to be healthy
2.5 2.0 1.5 (%) 1.0 0.5 0.0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E 16.4 1.5 1.6 22.9 19.3 1.8 2.0 26.1 25.8 2.1 18.6 1.5 17.6 1.5 18.1 1.6

23.6 1.9

16.5 1.4

RoA

RoE (RHS)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY14E

-0.1

Q1FY13

Page 3

Financial summary
Profit and loss statement
| Crore (Year-end March) Interest Earned Interest Expended Net Interest Income % growth Non Interest Income Net Income Employee cost Other operating Exp. Operating Income Provisions PBT Taxes Net Profit % growth EPS (|) FY12 5982.7 4591.1 1,391.6 1.4 232.4 1,624.1 72.4 164.6 1387.0 156.1 1230.9 316.7 914.2 -6.2 18.1 FY13E 7448.7 5903.8 1544.9 11.0 210.1 1755.1 83.8 188.1 1483.2 115.2 1368.0 369.4 998.6 9.2 19.8 FY14E 9079.6 7070.0 2009.6 30.1 254.1 2263.7 93.5 224.1 1946.0 123.0 1823.0 485.8 1337.1 33.9 24.3 FY15E 10829.5 8279.8 2549.7 26.9 287.9 2837.6 100.9 274.8 2461.9 116.1 2345.9 621.7 1724.2 28.9 31.3

Key ratios
(Year-end March) Valuation No. of Equity Shares EPS (Rs.) BV (Rs.) BV-ADJ (Rs.) P/E P/BV P/adj.BV Yields & Margins Yield on interest earning assets Avg. cost on funds Net Interest Margins Quality and Efficiency Cost / Total net income GNPA% NNPA% RONW (%) ROA (%) 10.4 9.1 2.38 14.6 0.4 0.1 18.6 1.5 10.5 9.3 2.15 15.5 0.7 0.4 16.5 1.4 10.4 9.1 2.29 14.0 0.7 0.4 17.6 1.5 10.4 8.8 2.43 13.2 0.7 0.3 18.1 1.6 FY12 50.5 18.1 108.2 110.9 13.7 2.3 2.2 FY13E 50.5 19.8 123.4 122.2 12.5 2.0 2.0 FY14E 55.1 24.3 155.5 153.1 10.2 1.6 1.6 FY15E 55.1 31.3 181.7 184.5 7.9 1.4 1.3

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March) Sources of Funds Capital Reserves and Surplus Networth Secured Loans Unsecured Loans Other Liabilities & Provisions Total Applications of Funds Fixed Assets Investments Advances Other Assets Total 76.8 1375.1 63080.2 1217.7 65749.7 85.4 1378.6 78061.4 1989.8 81515.2 96.5 1405.3 94718.5 3966.5 100186.9 100.9 5581.2 5682.1 52551.5 3535.7 3980.2 65749.6 100.9 6347.6 6448.6 66437.6 4057.5 4571.6 81515.2 110.1 8671.3 8781.5 81141.9 4606.8 5656.7 100186.9 FY12 FY13E FY14E

| Crore FY15E 110.1 10114.6 10224.7 96695.5 5306.1 6988.6 119214.8

Growth ratios
(% growth) (Year-end March) Total assets Advances Secured Loans Total Income Net interest income Operating expenses Operating profit (excl trading) Net profit Book value EPS FY12 22.6 23.5 29.1 27.7 1.4 9.7 -1.4 -6.2 36.6 -11.8 FY13E 24.0 23.7 26.4 23.2 11.0 14.7 7.7 9.2 14.0 9.2 FY14E 22.9 21.3 22.1 21.9 30.1 16.8 32.9 33.9 37.5 22.7 FY15E 19.0 18.8 19.2 19.1 26.9 18.3 27.7 28.9 16.9 28.9

110.8 1432.9 112545.1 5126.1 119214.8

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Company Description
LIC Housing Finance (LICHF) is the second largest housing finance company in India. The company is engaged in the business of providing loans for purchase, construction, repairs and renovation of houses/flats to individuals, corporate bodies, builders and cooperative housing societies and has its operations within India. Around 96% of the loan portfolio is derived from the retail segment with the rest from large corporate clients. The total outstanding loan book stands at | 72704 crore. LICHF was incorporated on June 19 1989. The company was promoted by Life Insurance Company of India, which currently has a 40% stake in the company.
Exhibit 8: Recommendation History
400 350 300 250 200 150 100 50 0

Aug-12

Nov-12

Oct-12

Jul-12

Jan-13

Feb-12

May-12

Price

Target Price

Source: Bloomberg, ICICIdirect.com Research

Exhibit 9: Recent Releases

Date 5-Jul-12 25-Jul-12 8-Oct-12 1-Nov-12 21-Dec-12 8-Jan-13 Event Q1FY13 Result Preview Q1FY13 Result Update Q2FY13 Result Preview Q2FY13 Result Update Banking Industry Report Q3FY13 Result Preview CMP 274 242 270 249 278 295 Target Price 250 250 250 280 340 340 Rating Hold Hold Hold Hold Buy Buy

Source: Company, ICICIdirect.com Research

ICICIdirect.com coverage universe (NBFC)

CMP Sector / Company IDFC (IDFC) LIC Housing Finance (LICHF) Reliance Capital (RELCAP) HDFC (HDFC) (|) 158 248 400 803 TP(|) Rating 180 340 520 792 Buy Buy Buy M Cap 23,901 10.2 12,523 18.1 9,828 18.5 EPS (|) 11.9 19.8 28.1 30.9 13.9 15.4 24.3 13.7 28.3 21.6 38.4 28.8 P/E (x) 13.3 12.5 14.2 26.0 11.4 10.2 14.1 20.9 2.0 2.2 1.2 6.4 P/ABV (x) 1.8 2.0 1.1 5.2 1.6 1.6 1.1 4.7 2.8 1.5 1.5 2.7 RoA (%) 2.7 1.4 2.0 2.6 2.7 13.2 1.5 18.6 1.9 4.6 2.7 22.7 RoE (%) 13.7 16.5 5.7 21.9 14.3 17.6 5.5 23.0 (| Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Hold 123,505 27.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Feb-13

Apr-12

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Kajal Gandhi CA Vasant Lohiya CA Jaymin Trivedi MBA-CM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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ICICI Securities Ltd | Retail Equity Research

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