Stock Update

Steady performer at reasonable valuation

Key points
LIC Housing Finance
ŠŠ Operating in-line performance: LIC housing
Reco: Buy | CMP: Rs547 Finance (LICHF) posted decent operating
performance for Q4FY2018. While net interest
income (NII) was down marginally by 1.4% y-o-y
Company details to Rs. 1,057.9 crore, NIMs bottomed out and
asset growth outlook brightened relatively.
Price target: Rs620
Market cap: Rs27,627 cr Net interest margins (NIM) for the quarter
increased by 16 BPS sequentially to 2.49%, even
52-week high/low: Rs794/477 though on a y-o-y basis, it declined by 48 BPS
NSE volume: (No of shares) 1.3 lakh due to increasing competition in the housing
finance space and hardening bond yields, which
BSE code: 500253 in turn impacted cost of funds (CoF). LICHF
has already increased its PLR in April 2018 by
NSE code: LICHSGFIN
20 BPS, which will help offset potential yield
Sharekhan code: LICHSGFIN compression impact due to rising costs. During
the next year, ~Rs. 21,000 crore of borrowing
Free float: (No of shares) 30.12 cr would be due for renewal; and we believe the
present interest rate scenario will not have an
adverse impact on NIMs. Non-interest income
Shareholding pattern
performance was better during the quarter, as
it grew by 74.6% to Rs. 33.2, driven by a 62.7%
y-o-y rise in fee income as the company revised
its pricing in the segment. Going forward as well,
we expect fee income to be healthy in FY2019E
Promoter both on base of revised pricing and lower base.
40.3% Provisions during the quarter declined by 68.5%
y-o-y to Rs. 28.1 crore, which helped net profit
Public for the quarter to remain flat at 1.9% y-o-y.
59.7%
ŠŠ Outlook: LICHF has been able to maintain its
growth momentum via higher disbursements,
notwithstanding the persistent pre-payments,
which have been coming down slightly.
Respectable asset quality with high PCR is a
Price chart positive. Sequentially better NIMs were offset
850 by higher CoF as volatile bond yields weighed
800 in on the spreads. However, the recent PLR
750 rate hike should be positive as it will lift overall
700 portfolio yield, support spreads and help offset
650 prepayments. While we believe NIMs have
600 bottomed out, we expect NIMs to remain range
550 bound due to increased competition and a
500 dynamic interest rate scenario. Nonetheless,
450 bottoming out of NIMs will be seen as a positive
400 for the HFC.
Apr-17

Apr-18
Aug-17

Dec-17

ŠŠ Valuation: LICHF trades at 1.9x its FY2019E

book value and is reasonably valued at these
levels, considering growth in the overall housing
Price performance
market, opportunity in affordable housing
(%) 1m 3m 6m 12m and non-salaried segment, among others. We
believe improved infrastructure and rural spend
Absolute 4.7 -4.5 -14.1 -16.5 and the government’s incentives for housing are
Relative to Sensex -1.4 -0.4 -19.4 -29.4
positives in its favour. We upgrade our rating to
Buy with a price target of Rs. 620.

April 25, 2018 2

Sharekhan Stock Update

ŠŠ Business growth steady: LICHF witnessed loan
book growth of 15.1% y-o-y during Q4FY2018,
which was largely similar to Q3FY2018 and
Q2FY2018 y-o-y growth. However, while
individual loan portfolio increased by 13.8%
y-o-y, developer loans jumped by 46.2%
y-o-y, taking the contribution of such loans to
form 4.8% of total loan book. Individual loan
portfolio stood at Rs. 1,58,270 crore (95.1% of
total loans), while developer loan portfolio
stood at Rs. 8,093 crore (4.8% of total loans). In
the individual segment, loan to self-employed
segment stood at ~12% of total loan book for
LICHF and we believe this can be an important
growth driver for it. Disbursement growth during
the quarter was satisfactory at 14.5% y-o-y, with
corporate loan disbursement higher at 83.9%
y-o-y. Management has guided better loan
growth in FY2019E, driven by the individual
segment. Asset quality improved for LICHF as
GNPA ratio declined by 9 BPS on a sequential
basis to 0.78%, in which the individual loan
segment’s GNPA stood at 0.42% (down 5 BPS
q-o-q). However, due to increasing disbursal to
the developer segment, we believe asset quality
will be a key monitorable for investors.

Results Rs cr
Particulars Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)
Interest income 3,901.0 3,642.9 7.1 3,738.1 4.4
Interest expense 2,843.1 2,569.9 10.6 2,814.8 1.0
Net interest income 1,057.9 1,072.9 -1.4 923.3 14.6
Non-interest income 33.2 19.0 74.6 29.5 12.5
Net total income 1,091.1 1,091.9 -0.1 952.8 14.5
Operating expenses 224.2 196.5 14.1 147.7 51.8
Pre-provisioning profit 866.9 895.4 -3.2 805.0 7.7
Provisions 28.1 89.3 -68.5 48.4 -41.9
Profit before tax 838.7 806.1 4.0 756.6 10.9
Tax 299.4 276.9 8.1 265.5 12.8
Profit after tax 539.3 529.2 1.9 491.1 9.8
Asset Quality (%)
- Gross NPLs 0.78 0.43 35 bps 0.87 -9 bps
- Net NPLs 0.43 0.14 29 bps 0.49 -6 bps
Key Ratios (%)
-NIM 2.49 2.97 -48 bps 2.33 16 bps

Funding mix (%) Asset quality (%)

100% 1.0
0.9
80% 0.8
0.7
60% 0.6
0.5
40% 0.4
0.3
20% 0.2
0.1
0% -
Q4FY16 Q4FY17 Q4FY18 Q4FY16 Q4FY17 Q4FY18

Bank borrowings NCDs Others Gross NPL (%) Net NPL (%)

April 25, 2018 3

Sharekhan Stock Update

NIM (%) Loan book (Rs cr)

180,000 35%
3.0
160,000
140,000 30%
2.5
120,000
2.0 25%
100,000

1.5 80,000
20%
60,000
1.0 40,000 15%
20,000
0.5
0 10%
0.0 Q4FY16 Q4FY17 Q4FY18
Q4FY16 Q4FY17 Q4FY18 Loan book (Rs cr) growth (YoY, %)

Operating expenses (Rs cr) One-year forward P/BV SD band

250.0 30% 3.5
3.1
25%
200.0 2.7
20%
2.3
150.0 15% 1.9

10% 1.5
100.0
1.1
5%
0.7
50.0
0% 0.3
Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18
0.0 -5%
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18

Operating expenses (Rs. Cr) Growth (%) PBV (x) +0.5 Mean 5 year rolling PBV mean -0.5 Mean

Profit and loss statement Rs cr

Particulars FY16 FY17 FY18 FY19E FY20E
Net Interest Income 3,089 3,694 3,835 4,230 4,936
Non Interest Income 89 155 113 198 232
Net Total Income 3,179 3,849 3,948 4,428 5,168
Operating expenses 469 612 648 766 907
Pre-provisioning profit 2,710 3,237 3,301 3,662 4,262
Provisions 146 281 239 294 347
Profit before tax 2,564 2,956 3,062 3,367 3,914
Tax 903 1,025 1,072 1,162 1,350
Profit after tax 1,661 1,931 1,990 2,206 2,564

Balance sheet Rs cr
Particulars FY16 FY17 FY18 FY19E FY20E
Shareholders' funds 9,146 11,077 12,691 14,486 16,573
Capital 101 101 101 101 101
Reserves & Surplus 9,045 10,976 12,590 14,385 16,472
Borrowings 96,099 111,326 119,606 151,107 178,278
Total sources of funds 105,245 122,403 132,297 165,593 194,852
Loan Book 125,173 144,534 166,363 196,242 231,530
Investments 277 527 987 1,085 1,194
Net other Assets -20,205 -22,658 -35,053 -31,735 -37,873
Total application of funds 105,245 122,403 132,297 165,593 194,852

April 25, 2018 4

Sharekhan Stock Update

Key ratios Rs cr
Particulars FY16 FY17 FY18 FY19E FY20E
Per share Data (Rs)
Earnings 32.9 38.2 39.4 43.7 50.8
Dividend 5.5 6.2 6.3 7.0 8.1
Book value 181.1 219.4 251.3 286.9 328.2
Adj. book value 171.1 213.2 244.6 279.5 320.1
Spreads (%)
Yield on assets 10.6 10.3 9.6 9.5 9.7
Cost of funds 9.7 9.9 9.6 9.6 9.6
Net interest margins 2.6 2.7 2.5 2.3 2.3
Risk Adj. NIM 2.5 2.5 2.3 2.2 2.1
Operating ratios (%)
Cost to income 14.7 15.9 16.4 17.3 17.5
Non interest income / net total 2.8 4.0 2.9 4.5 4.5
income
Assets/Equity (x) 14.0 13.3 13.3 14.2 14.3
Return ratios (%)
RoAE 19.6 19.1 16.7 16.2 16.5
RoAA 1.6 1.7 1.6 1.5 1.4
Asset quality ratios (%)
Gross NPA 0.57 0.43 0.78 0.47 0.44
Net NPA 0.40 0.14 0.43 0.19 0.18
Growth ratios (%)
Net interest income 31.0 19.6 3.8 10.3 16.7
Pre-provisioning profit 28.5 19.4 2.0 10.9 16.4
Profit after tax 19.8 16.3 3.0 10.9 16.2
Advances 15.5 15.5 15.1 18.0 18.0
Borrowings -0.5 15.8 7.4 26.3 18.0
Valuation ratios (x)
P/E 16.7 14.4 13.9 12.6 10.8
P/BV 3.0 2.5 2.2 1.9 1.7
P/ABV 3.2 2.6 2.2 2.0 1.7

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April 25, 2018 5

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