RESULTS REVIEW 3QFY16

18 JAN 2016

LIC Housing Finance

BUY
INDUSTRY
CMP (as on 18 Jan 2016)
Target Price

NBFCs
Rs 464
Rs 550

Nifty

8,238

Sensex

27,215

KEY STOCK DATA

Bloomberg/Reuters

LICHF IN/LICH.BO

No. of Shares (mn)

505

MCap (Rs bn) / ($ mn)

250/3,848

6m avg traded value (Rs mn)

1,130

STOCK PERFORMANCE (%)

52 Week high / low

Rs 526/320
3M

6M

12M

Absolute (%)

6.8

9.7

51.0

Relative (%)

11.2

14.7

46.3

SHAREHOLDING PATTERN (%)

Promoters
FIs & Local MFs

40.31
7.58

FIIs

35.01

Public & Others

17.10

Source : BSE

Darpin Shah
darpin.shah@hdfcsec.com
+91-22-6171-7328
Siji Philip
siji.philip@hdfcsec.com
+91-22-6171-7324

Steady as ever
LIC Housing Finances (LICHF) 3Q core earnings beat
was driven by steady NIM and loan growth. With
higher competition, individual loan repayments were
at a multi-quarter high. Rising proportion of highyielding LAP and project finance, along with the
decline in CoF, supported steady spread/NIM. While
project loan disbursements continued their steady
run, the growth in individual loans was led by the
LAP segment. Asset quality, too, remained stable.
LICHFs focus on high-yielding LAP and project loans,
coupled with the fall in CoF, augur well for spreads.
However, given the rising competition (sharp base
rate reductions by banks), we have further
moderated our NIM expectations to ~2.4% vs. 2.5%
and book growth to ~16% CAGR vs. ~17%. Maintain
BUY with a revised TP of Rs 550 (2.4x 1-year forward
ABV of Rs 229).

Key takeaways

Slower Individual disbursements (12% YoY; ex LAP

at ~7% YoY) and higher repayments (4.4%) led to

individual loan growth of ~15% (vs. our estimate of
~16%). The high-yielding LAP portfolio grew ~17%
QoQ to form ~6.4%, and the project finance grew
~3% QoQ to ~2.6%. With rising competition, we
have lowered loan growth assumption to ~16%
CAGR vs. 17.5% over FY15-18E.
Decline in interest rates and shift in borrowing mix
led to 11bps decline in CoF. Despite rising
proportion of high-yielding loans, yields declined
~12bps QoQ, led by ~30bps reduction in PLR. This
lead to stable spread/NIM of ~1.57/2.58%.
While the continued decline in interest rates and
focus towards high-yielding loans will benefit
LICHF, we believe the competition will keep
yields under pressure. We lower NIM estimates
to 2.4% vs. 2.5% (earlier) over FY15-18E.

Financial Summary
(Rs mn)
Net Interest Income
PPOP
PAT
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)

3QFY16
7,469
6,804
4,189
8.3

3QFY15
5,486
5,283
3,443
6.8

YoY (%)
36.2
28.8
21.7
21.7

2QFY16
7,169
6,743
4,117
8.2

QoQ (%)
4.2
0.9
1.7
1.7

FY15
22,364
21,092
13,862
27.5
18.1
1.43
150.2
3.09
16.9

FY16E
29,254
27,377
17,080
33.8
20.1
1.52
176.1
2.63
13.7

FY17E
33,018
30,849
18,930
37.5
19.1
1.46
205.8
2.25
12.4

FY18E
37,121
34,507
21,077
41.7
18.3
1.40
236.9
1.96
11.1

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

Asset quality remained stable over the past three

quarters with G/NNPA at 0.58/0.32% to Rs 6.8bn.

Individual GNPAs (Rs 3.65bn) marginally declined
to 32bps vs. 33bps. Project loans GNPAs, too,
were flat QoQ at Rs 3.2bn (10.2% of project
loans). Provisions cost jumped ~15% QoQ to Rs
344mn led by higher std. assets provisions
(towards LAP and project loan segments) and
shift in NPL buckets.

We expect LICHFs NII to grow at 18% CAGR over

FY15-18E, driven by loan growth of ~16% CAGR

and avg. NIM of 2.4% (vs. 2.2% in FY15). With
rising provisions cost (std. assets related and
base effect), we expect PAT to grow at ~15%
CAGR. LICHFs return ratios are expected to
remain stable with RoA of ~1.5% and RoE of
~19%.

PABV Band Chart

3.5

600
500

2.5x

400

2.0x

3.0

+2SD

2.5

300

1.5x

200

1.0x

100

+1SD

2.0

Avg.

1.5

-1SD

1.0

-2SD

0.5

Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16

Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16

Source: Company

Page | 2

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

Five Quarters At A Glance

(Rs mn)
Net Interest Income
Non-interest Income
Operating income
Operating expenses
Pre-provision profits
Provisions and contingencies
PBT
Provision for Tax
PAT
Balance Sheet items
Disbursements (Rs bn)
Individual (Rs bn)
Projects (Rs bn)
Loan Book (Rs bn)
Individual (Rs bn)
Projects (Rs bn)
Borrowings (Rs bn)
Profitability
Yield on Advances (%)
Cost of Funds (%)
Spreads
NIM (%)
Cost-Income ratio (%)
Tax rate (%)
Asset quality
Gross NPA (Rsmn)
Net NPA (Rsmn)
Gross NPAs (%)
Net NPAs (%)
Individual Gross NPAs (%)
Coverage ratio (%)

Led by loan growth of 15% and NIM

improvement of ~38bps to 2.58%

3QFY15
5,486
680
6,166
882
5,283
68
5,215
1,772
3,443

4QFY15
6,498
604
7,102
1,246
5,856
103
5,753
1,971
3,782

1QFY16
6,589
481
7,069
835
6,234
443
5,790
1,969
3,821

2QFY16
7,169
633
7,803
1,060
6,743
301
6,442
2,325
4,117

3QFY16
7,469
549
8,018
1,214
6,804
344
6,460
2,271
4,189

76.3
71.8
4.5
1,019.4
993.6
25.8
906

99.4
95.5
3.9
1,083.6
1,056.3
27.3
965

61.2
59.4
1.8
1,104.1
1,077.0
27.1
977

82.7
79.4
3.2
1,140.7
1,110.8
29.9
1,016

84.2
80.7
3.5
1,174.0
1,143.1
30.9
1,038

10.3%
12.3%
-21.0%
15.2%
15.0%
19.7%
14.6%

1.9%
1.5%
9.9%
2.9%
2.9%
3.3%
2.1%

10.70
9.49
1.21
2.20
14.3
34.0

10.65
9.19
1.46
2.47
17.5
34.3

10.84
9.38
1.46
2.41
11.8
34.0

10.87
9.29
1.58
2.56
13.6
36.1

10.75
9.18
1.57
2.58
15.1
35.2

5 bps
-31 bps
36 bps
38 bps
83 bps
119 bps

-12 bps
-11 bps
-1 bps
2 bps
155 bps
-93 bps

Incremental spreads at 2.1% (led by

~43bps lower CoF (vs. the reported
nos) and yield s ~10bps higher vs.
the reported nos.

5,795
3,166
0.57
0.31
0.33
45.4

4,947
2,344
0.46
0.22
0.24
52.6

6,591
3,598
0.60
0.33
0.36
45.4

6,830
3,690
0.60
0.32
0.33
46.0

6,820
3,740
0.58
0.32
0.32
45.2

17.7%
18.1%
1 bps
1 bps
-1 bps
-22 bps

-0.1%
1.4%
-2 bps
0 bps
-1 bps
-81 bps

Project loans NPLs at Rs 3.2bn and

individual at Rs 3.7bn

Old
29,725
28,164
17,431
179.2

FY16E
New
29,254
27,377
17,080
176.1

YoY Growth QoQ Growth

36.2%
4.2%
-19.2%
-13.2%
2.8%
30.0%
14.5%
37.6%
0.9%
28.8%
406.0%
14.6%
23.9%
0.3%
28.2%
-2.3%
21.7%
1.7%

Processing fees grew +16% YoY

Led by staff (19% YoY and QoQ) and
advertising expenses
Higher provisions led by Std assets
provisions on LAP and project loans
LAP/project loan portfolio stood at
6.4/2.6%. Repayment ratio further
inched up to 4.4% vs. 3.1% YoY and
4.2% QoQ
Bank borrowings declined to 12.5%

Individual GNPA at 32bps vs. 33bps

QoQ

Change In Estimates
Rs mn
NII
PPOP
PAT
Adj. BVPS (Rs)
Source: HDFC sec Inst Research

Change
-1.6%
-2.8%
-2.0%
-1.8%

Old
34,383
32,514
20,154
210.7

FY17E
New
33,018
30,849
18,930
205.8

Change
-4.0%
-5.1%
-6.1%
-2.3%

Page | 3

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

Projects

Individual (LHS)

Rs bn

35
25

80

20
15

60

10

40
20

Overall disbursement grew 10%

YoY and 2% QoQ

-5

Source: Company

Loan Growth Book Driven By Individual Segment

Project Loans (%) Stable QoQ At 2.6%

1,400

20.0

1,200

10.0

1,000

800

(10.0)

600
400

(30.0)

200

(40.0)

Source: Company

3QFY16

2QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

0
1QFY13

1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16

(20.0)

Individual

2QFY14

The management is hinting at

increasing the share of highyielding segments to form ~10%
of loans

10

15

30.0

350
300
250
200
150
100
50
0
-50
-100
-150

Rs bn

1QFY14

% YoY

25
20

Projects

Developer (RHS)

4QFY13

30

% YoY

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

1QFY13

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

Source: Company

LAP book stood at ~6.4% vs. 5.6%

QoQ

Floating loans ~40%; re-pricing of

Rs 80bn in 4QFY16 and Rs 150bn
each in FY17 and FY18.

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

Individual (LHS)

Share of project loans was stable

QoQ at2.6%

% YoY

30

100

Ex. LAP, individual disbursements

grew ~7% YoY

Loan growth remains driven by

individual loans (97.4% of book)
up 15% YoY and 3% QoQ

Developer (RHS)

% YoY

3QFY13

LAP disbursements (~Rs 14bn)

drove the individual
disbursements (+12/1.5%
YoY/QoQ)

Individual

2QFY13

120

Overall Disbursals Grew 10/2% YoY/QoQ

3QFY16

Individual Disbursements Led By LAP

2QFY13

Disbursements for project loans

up 10% QoQ to Rs 3.2bn

Source: Company

Page | 4

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

8.0
7.0

2.80

6.0
2.30

5.0
4.0

1.80

3.0
2.0

1.30

1.0

Project loan NPAs were flat QoQ

at Rs 3.16bn (10.2% of loans).

Source: Company

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

0.0
3QFY13

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

3QFY13

4QFY13

1QFY13

Individual GNPAs stood at 32bps

vs. 33bps in 2Q

2QFY13

0.80

2QFY13

Stable asset quality with

GNPA/NNPA at 0.6%/0.32%

1QFY13

NIM improved 38bps YoY and

2bps QoQ to 2.56%

3QFY16

3.30

Net NPA
Net NPA (%) - RHS
%
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
2QFY16

Gross NPA
Gross NPA (%) - RHS
Rs bn

NIM

1QFY16

Spread

Asset Quality Stable QoQ

4QFY15

NIM Continues To Improve Sequentially

3QFY15

Led by rising proportion of highyielding LAP and project finance

book, coupled with decline in CoF,
spreads improved 36bpsYoY

Source: Company

Peer Valuations
NBFC
CIFC
LICHF
MMFS
SCUF
SHTF

Mcap
(Rs bn)
93
234
122
92
174

CMP
(Rs)
599
464
216
1,402
767

Reco
BUY
BUY
NEU
BUY
BUY

TP
(Rs)
718
550
261
1,974
1,034

FY16E
187
176
87
634
397

ABV (Rs)
FY17E FY18E
220
259
206
237
97
105
718
809
449
480

FY16E
17.9
13.7
15.1
14.3
14.2

P/E (x)
FY17E
14.5
12.4
12.0
11.7
11.9

FY18E
12.1
11.1
11.2
10.1
10.3

P/ABV (x)
FY16E FY17E FY18E
3.21
2.73
2.31
2.63
2.25
1.96
2.40
2.14
1.98
2.21
1.95
1.73
1.93
1.71
1.60

ROAE (%)
FY16E FY17E FY18E
16.6
16.6
17.3
20.1
19.0
18.3
13.1
14.9
14.4
14.7
15.7
15.9
12.5
13.4
13.8

ROAA (%)
FY16E FY17E FY18E
2.05
2.18
2.21
1.52
1.46
1.40
2.09
2.32
2.17
3.29
3.43
3.37
2.02
2.18
2.27

Source: Company, HDFC sec Inst Research

Page | 5

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

Income Statement
(Rs mn)
FY14
Interest Earned
90,858
Interest Expended
71,744
Net Interest Income
19,114
Other Income
2,488
Total Income
21,602
Total Operating Exp
3,133
Employee Expense
1,038
PPOP
18,470
Provisions & Contingencies
215
PBT
18,255
Provision for Tax
5,083
PAT
13,172
Source: Bank, HDFC sec Inst Research

Balance Sheet
FY15
105,467
83,102
22,364
2,520
24,884
3,792
1,293
21,092
72
21,020
7,158
13,862

FY16E
128,526
99,272
29,254
2,907
32,161
4,783
1,481
27,377
1,499
25,878
8,799
17,080

FY17E
144,766
111,748
33,018
3,344
36,362
5,513
1,717
30,849
1,948
28,901
9,971
18,930

FY18E
164,317
127,196
37,121
3,836
40,957
6,450
2,009
34,507
2,329
32,178
11,101
21,077

(Rs mn)
FY14
FY15
FY16E
FY17E
SOURCES OF FUNDS
Share capital
1,010
1,010
1,010
1,010
Reserves and surplus
74,319
77,174
90,640
105,564
Shareholders Funds
75,329
78,184
91,650
106,573
Long-term debt
677,123
805,186
924,353 1,070,401
Current maturity of long term 119,902
141,104
161,988
187,582
Short term
37,381
26,980
30,973
35,867
Total debt
834,407
973,270 1,117,314 1,293,849
Long-term provisions
7,954
10,194
11,204
12,480
Total
917,690 1,061,648 1,220,168 1,412,903
APPLICATION OF FUNDS
Fixed Assets & WIP
756
797
836
878
Non-current investments
1,991
2,371
2,371
2,371
Current investments
2.3
0.0
0.0
0.0
Cash and cash equivalents
30,224
29,331
23,548
17,190
Advances
915,303 1,085,117 1,242,459 1,441,252
Other current assets
6,929
7,835
8,293
8,796
Total current assets (ex-cash)
6,931
7,835
8,293
8,796
Other current liabilities
40,081
57,112
57,340
57,583
Net Current Assets
(33,149) (49,277) (49,047) (48,788)
Net Deferred tax
2,566
(6,690)
Total assets
917,690 1,061,648 1,220,168 1,412,903
Source: Bank, HDFC sec Inst Research

FY18E
1,010
122,180
123,190
1,247,017
218,533
41,785
1,507,335
14,053
1,644,578
922
2,371
0.0
3,753
1,686,265
9,110
9,110
57,844
(48,733)
1,644,578

Page | 6

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

Key Ratios
FY14
VALUATION RATIOS
EPS
Earnings Growth (%)
BVPS
Adj. BVPS (100% cover)
ROAA (%)
ROAE (%)
P/E (x)
P/ABV (x)
P/PPOP (x)
Dividend Yield (%)
PROFITABILITY
Yield on Advances (%)
Cost of Funds (%)
Core Spread (%)
NIM (%)
OPERATING EFFICIENCY
Cost/Avg. Asset Ratio (%)
Cost-Income Ratio
BALANCE SHEET STRUCTURE
RATIOS
Loan Growth (%)
Borrowing Growth (%)
Equity/Assets (%)
Equity/Loans (%)
Total Capital Adequacy Ratio
(CAR)
Tier I CAR

FY15

FY16E

FY17E

FY18E

26.1
28.7
149.2
142.2
1.6
18.8
17.8
3.3
12.7
1.0

27.5
5.2
154.8
150.2
1.4
18.1
16.9
3.1
11.1
1.1

33.8
23.2
181.5
176.1
1.5
20.1
13.7
2.6
8.6
1.3

37.5
10.8
211.0
205.8
1.5
19.1
12.4
2.3
7.6
1.5

41.7
11.3
243.9
236.9
1.4
18.3
11.1
2.0
6.8
1.6

10.70
9.51
1.19
2.20

10.54
9.31
1.24
2.17

10.34
8.96
1.39
2.46

10.04
8.71
1.34
2.42

9.74
8.51
1.24
2.36

0.4
14.5

0.4
15.2

0.4
14.9

0.4
15.2

0.4
15.7

17.4
19.3
8.4
9.2

18.6
17.7
7.5
8.1

14.5
14.8
7.6
8.3

16.0
15.8
7.7
8.3

17.0
16.5
7.6
8.2

16.4

15.3

16.0

15.5

15.0

12.2

11.8

12.2

12.3

12.2

FY14
ASSET QUALITY
Gross NPLs (Rsm)
6,090
Net NPLs (Rsm)
3,536
Gross NPLs (%)
0.67
Net NPLs (%)
0.39
Coverage Ratio (%)
41.9
Provision/Avg. Loans (%)
0.03
RoAA TREE (%)
Net Interest Income
2.32
Non Interest Income
0.30
Operating Cost
0.38
Provisions
0.03
Tax
0.62
ROAA
1.60
Leverage (x)
11.8
ROAE
18.8
Source: Company, HDFC sec Inst Research

FY15

FY16E

FY17E

FY18E

4,947
2,344
0.46
0.22
52.6
0.01

6,834
2,732
0.55
0.22
60.0
0.13

7,206
2,656
0.50
0.18
63.1
0.15

8,431
3,552
0.50
0.21
57.9
0.15

2.31
0.26
0.39
0.01
0.74
1.43
12.6
18.1

2.61
0.26
0.43
0.13
0.78
1.52
13.2
20.1

2.55
0.26
0.43
0.15
0.77
1.46
13.1
19.1

2.47
0.26
0.43
0.15
0.74
1.40
13.1
18.3

Page | 7

LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

RECOMMENDATION HISTORY
LIC Housing Finance

Date
15-Jan-15
20-Apr-15
21-Jul-15
16-Oct-15
18-Jan-16

TP

650
600
550

CMP
465
442
465
495
464

Reco
BUY
BUY
BUY
BUY
BUY

Target
520
528
528
569
550

500
450
400

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

350

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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LIC HOUSING FINANCE : RESULTS REVIEW 3QFY16

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Any holding in stock No
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