LIC Housing Finance
Broking house, Angel Broking has maintained hold rating on LIC Housing Finance with a target price of Rs 220.
Performance Highlights
Net Interest Income up 59%: During Q1FY2008, LIC Housing Finance's (LICHF) clocked a 33% yoy growth in Interest Income to Rs442cr (Rs332cr), whereas Interest Expenses moved up 31% to Rs338cr (Rs256cr). Net Interest Income (NII) of the company grew 59% to Rs104cr (Rs76cr). This growth in NII was backed by a strong 18% growth in loans and improved spreads.
Improved Interest Spreads: LICHF's Interest Spreads improved 7bp sequentially to 1.4% (1.3%). This improvement in spreads was seen on the back of a 40bp improvement in the yield on loans to 10.0%, while cost of funds improved 33bp to 8.6%. The company's interest spreads moved up 43bp from 0.9% in the previous year. However, Net Interest Margins (NIMs) declined sequentially by 10bp to 2.4% (2.5%), while it has improved by 62bp yoy from 1.7%. We maintain our FY2008 estimate for NIM at 2.5%
Net Profit grew 25%: LICHF's Net Profit for Q1FY2008 rose 25% to Rs47cr (Rs38cr). Increase in the effective tax rate and higher provisions restricted the Bottomline growth. Hence, we believe that Bottom-line growth in FY2008 will be muted at Rs288cr (3.2%). Moreover, we can expect positive surprises on the bad loan recovery front.
Increase in Tax rate: During Q1FY2008, the effective tax payout of the company increased to 25% (12%). For FY2008, the company's effective tax rate will stand increased from 20% to 26% on the back of reduction in tax benefit on Special Reserves from 40% to 20%.
Higher provision on loans: During Q1FY2008, LICHFL created provision on housing loan of Rs35cr (Rs21cr), up 66% yoy on the back of the historical trend of higher NPAs in the first quarter.
In line growth in Disbursements: Home loan portfolio grew in line with our expectations, moving up 18% yoy to Rs18,185cr (Rs15,393cr). Sanctions and Disbursements grew 16% and 12% to Rs1,156cr (Rs993cr) and Rs1,222cr (Rs1,080cr), respectively. The sluggish growth witnessed in Sanctions and Disbursements was seasonal in nature and would improve going forward.
Fixed Deposit scheme to contain cost of funds: The company has initiated its maiden Fixed Deposit scheme to mobilise funds. This is in line with the company's strategy to contain its cost of funds and maintain margins. During Q1FY2008, the company mobilised close to Rs10cr.
Asset quality: LICHF's Asset quality was under pressure following an increase in Gross NPAs to Rs 739cr (Rs585cr), i.e., up at 4.1% (3.8%). Sequentially, Gross NPA increased by 144bp from 2.58% in Q4FY2007, which was disappointing. While the Net NPAs ratio improved to 2.6% (3.0%) on the back of improvement in the provision coverage to 36% (21%) during the period. Higher NPAs are more of a historical trend in the first quarter. However, going forward, we believe that LICHF's recovery policy would facilitate an improvement in its asset quality and would be one of the key factors for a re-rating of the stock on the bourses going ahead.
Outlook and Valuation
Considering seasonality of the housing finance business and historic trends of the first quarter having higher NPAs, the company's performance for the period under review was in line with expectation. Going ahead, the company would focus on improving its asset quality and NIMs. We maintain a positive outlook on the company and expect a 20% growth in its home loan portfolio in FY2008, and around 3.2% growth in Bottomline. At the CMP of Rs214, the stock trades at 5.7x and 1.0x FY2009E EPS of Rs38 and Adjusted Book Value of Rs220. We maintain a Hold on the stock with a target price of Rs 220.
Broking house, Angel Broking has maintained hold rating on LIC Housing Finance with a target price of Rs 220.
Performance Highlights
Net Interest Income up 59%: During Q1FY2008, LIC Housing Finance's (LICHF) clocked a 33% yoy growth in Interest Income to Rs442cr (Rs332cr), whereas Interest Expenses moved up 31% to Rs338cr (Rs256cr). Net Interest Income (NII) of the company grew 59% to Rs104cr (Rs76cr). This growth in NII was backed by a strong 18% growth in loans and improved spreads.
Improved Interest Spreads: LICHF's Interest Spreads improved 7bp sequentially to 1.4% (1.3%). This improvement in spreads was seen on the back of a 40bp improvement in the yield on loans to 10.0%, while cost of funds improved 33bp to 8.6%. The company's interest spreads moved up 43bp from 0.9% in the previous year. However, Net Interest Margins (NIMs) declined sequentially by 10bp to 2.4% (2.5%), while it has improved by 62bp yoy from 1.7%. We maintain our FY2008 estimate for NIM at 2.5%
Net Profit grew 25%: LICHF's Net Profit for Q1FY2008 rose 25% to Rs47cr (Rs38cr). Increase in the effective tax rate and higher provisions restricted the Bottomline growth. Hence, we believe that Bottom-line growth in FY2008 will be muted at Rs288cr (3.2%). Moreover, we can expect positive surprises on the bad loan recovery front.
Increase in Tax rate: During Q1FY2008, the effective tax payout of the company increased to 25% (12%). For FY2008, the company's effective tax rate will stand increased from 20% to 26% on the back of reduction in tax benefit on Special Reserves from 40% to 20%.
Higher provision on loans: During Q1FY2008, LICHFL created provision on housing loan of Rs35cr (Rs21cr), up 66% yoy on the back of the historical trend of higher NPAs in the first quarter.
In line growth in Disbursements: Home loan portfolio grew in line with our expectations, moving up 18% yoy to Rs18,185cr (Rs15,393cr). Sanctions and Disbursements grew 16% and 12% to Rs1,156cr (Rs993cr) and Rs1,222cr (Rs1,080cr), respectively. The sluggish growth witnessed in Sanctions and Disbursements was seasonal in nature and would improve going forward.
Fixed Deposit scheme to contain cost of funds: The company has initiated its maiden Fixed Deposit scheme to mobilise funds. This is in line with the company's strategy to contain its cost of funds and maintain margins. During Q1FY2008, the company mobilised close to Rs10cr.
Asset quality: LICHF's Asset quality was under pressure following an increase in Gross NPAs to Rs 739cr (Rs585cr), i.e., up at 4.1% (3.8%). Sequentially, Gross NPA increased by 144bp from 2.58% in Q4FY2007, which was disappointing. While the Net NPAs ratio improved to 2.6% (3.0%) on the back of improvement in the provision coverage to 36% (21%) during the period. Higher NPAs are more of a historical trend in the first quarter. However, going forward, we believe that LICHF's recovery policy would facilitate an improvement in its asset quality and would be one of the key factors for a re-rating of the stock on the bourses going ahead.
Outlook and Valuation
Considering seasonality of the housing finance business and historic trends of the first quarter having higher NPAs, the company's performance for the period under review was in line with expectation. Going ahead, the company would focus on improving its asset quality and NIMs. We maintain a positive outlook on the company and expect a 20% growth in its home loan portfolio in FY2008, and around 3.2% growth in Bottomline. At the CMP of Rs214, the stock trades at 5.7x and 1.0x FY2009E EPS of Rs38 and Adjusted Book Value of Rs220. We maintain a Hold on the stock with a target price of Rs 220.
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