LIC Housing Finance - Motilal Oswal

LIC Housing Finance (LICHF) reported a sharp 58% YoY and 62% QoQ decline in PAT for 2QFY12 to INR984m (v/s our estimate of INR2.66b), led by a steep decline (33bp QoQ) in margins and one-off provisions of INR2.05b due to change in provisioning guidelines by the NHB. Adjusting for one-time provisions of INR2.05b, PAT stood at ~INR2.5b, ~5% lower than our estimate.

- Loans grew 29% YoY and 6% QoQ to INR561b. The individual loans portfolio showed robust growth of 35% YoY (~7% QoQ) to INR521b (~93% of total loan book), while the builder loans portfolio declined 18% YoY (1% QoQ) to INR40b. The management has guided loan growth of 20-25% for FY12.

- Disbursements grew 45% QoQ to INR51.5b, driven by 24% YoY and 37% QoQ growth in individual disbursements. Disbursements to the developer segment increased to INR4.1b from INR774m in 1QFY12.

- Despite strong asset growth, NII grew 10% YoY (declined 7% QoQ) to INR3.3b. Reported NIM declined 33bp QoQ to 2.45%, driven by higher cost of funds.

- Asset quality improved, with gross NPA declining 19% QoQ. In percentage terms, GNPA reduced from 0.84% in 1QFY12 to 0.64%. Notably, provision coverage ratio improved to 82% from 59% in 1QFY12.

- LICHF made additional provisions worth INR2.05b on account of changes in the provisioning guidelines by the NHB for standard assets (INR1.6b) and non-performing assets (INR0.45b). LICHF did not utilize excess provisions (INR1.1b) on its balance sheet.

Valuation and view: We revise our earnings estimates downwards to factor in lower than expected margin performance and higher provisioning expenses. We expect LICHF to report BV of INR103 for FY12 and INR124 for FY13. The stock trades at 2.1x FY12E BV and 1.7x FY13E BV. We maintain Buy, with a price target of INR250.

Source : Equity Bulls

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