4QFY2012 Result Update | NBFC

April 25, 2012

LIC Housing Finance

Performance Highlights

Particulars (` cr) NII Pre-prov. profit PAT

Source: Company, Angel Research

ACCUMULATE
CMP Target Price
% chg (qoq) 7.8 6.2 (17.0) 4QFY11 481 448 315 % chg (yoy) (15.8) (22.7) (19.4)

`258 `286
12 months

4QFY12 405 346 254

3QFY12 376 326 306

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

NBFC 12,256 1.2 281/195 532,704 2 17,151 5,202 LICH.BO LICHF@IN

For 4QFY2012, LIC Housing Finance (LICHF) posted a weak set of numbers, with net profit declining by 19.4% yoy, below our estimates, mainly because of lower net interest income (NII) than estimated by us. We recommend an Accumulate rating on the stock. NIM disappoints again, as disbursements to the developer segment remain sluggish: For 4QFY2012, LICHFs loan book grew strongly by 23.5% yoy (7.4% qoq) to `63,080cr. Loan growth was driven by loans to the individual segment, which grew by 28.2% yoy to `59,895cr, while loans to the developer segment declined by 26.9% yoy to `3,185cr. The proportion of developer loans to overall loans dipped further from 6.0% in 3QFY2012 (10.5% as of 3QFY2011) to 5.0% in 4QFY2012. Disbursement growth to the individual segment (`6,345cr) was healthy during 4QFY2012 at 21.6% yoy (adjusted for one-off staff loan portfolio of `1,245cr acquired from LIC of India). In 3QFY2012, management had guided for ~`1,000cr of disbursals to high-yielding project loans during 4QFY2012; however, it disbursed only `274cr. The companys NIM has been on a downward trajectory and was lower by 100bp yoy at 2.4% for 4QFY2012. LICHF chose to utilize the extra provisions it is carrying on its balance sheet during 4QFY2012, leading to negative provisioning expenses of `2cr. The companys asset quality continued to be stable, with gross NPA at 0.42% (0.47% in 4QFY2011) and net NPA at 0.14% (0.03% in 4QFY2011). Provision coverage for LICHF as of 4QFY2012 stands at 66.7% (51.1% in 3QFY2012 and 93.7% in 4QFY2011). Outlook and valuation: At the CMP, the stock is trading at a P/ABV multiple of 1.7x FY2014E ABV of `156.0cr. Historically, the stock has traded at 0.8-2.1x one-year forward P/ABV multiple over FY2006-12, with a median of 1.4x, but it has been rerated over the past three years to 1.9x average. With loan growth expected to be healthy over FY2013-14 (factored in a 24% CAGR) and considering that interest rates have a downward bias going ahead, we recommend Accumulate on the stock with a target price of `286.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 40.3 9.4 34.7 15.5

Abs. (%) Sensex LICHF

3m 0.9 0.8

1yr (12.2) 14.0

3yr 51.4 275.3

Key financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research

FY2011 1,441 53.8 974 47.2 3.1 20.5 12.6 2.9 2.1 25.8

FY2012 1,431 (0.6) 914 (6.2) 2.5 18.1 14.3 2.3 1.5 18.6

FY2013E 1,877 31.2 1,235 35.1 2.6 24.5 10.6 2.0 1.7 20.1

FY2014E 2,326 23.9 1,545 25.1 2.6 30.6 8.4 1.7 1.7 21.4

Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com

Varun Varma 022 3935 7800 Ext: 6847 varun.varma@angelbroking.com Sourabh Taparia 022 3935 7800 Ext: 6872 sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

LIC Housing Finance | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance

Particulars (` cr) Interest earned Interest expenses Net interest income Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT EPS (`) Cost-to-income ratio (%) Effective tax rate (%) Net NPA (%)
Source: Company, Angel Research

4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy) 1,662 1,257 405 27 432 85 346 -2 349 95 254 5.0 19.8 27.3 0.1 1,589 1,213 376 4 380 53 326 -80 406 100 306 6.4 14.1 24.7 0.3 4.6 3.7 7.8 564.7 13.7 59.9 6.2 (97.0) (14.1) (5.1) (17.0) (22.0) 1,354 873 481 38 519 70 448 19 430 115 315 6.6 13.5 26.7 0.0 22.7 44.0 (15.8) (29.0) (16.7) 21.6 (22.7) (112.7) (18.8) (17.0) (19.4) (24.2)

Exhibit 2: 4QFY2012 Actual vs. Angel estimates

Particulars (` cr) Net interest income Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Company, Angel Research

Actual 405 27 432 85 346 (2) 349 95 254

Estimates 479 9 489 75 413 26 387 108 279

% chg (15.5) 182.0 (11.7) 13.2 (16.2) (109.2) (10.0) (11.8) (9.2)

April 25, 2012

LIC Housing Finance | 4QFY2012 Result Update

Loan growth remains healthy; NIM remains subdued on lower developer loans
For 4QFY2012, LICHFs loan book grew strongly by 23.5% yoy (7.4% qoq) to `63,080cr. Loan growth was driven by loans to the individual segment, which grew by 28.2% yoy to `59,895cr, while loans to the developer segment declined by 26.9% yoy to `3,185cr. The proportion of developer loans to overall loans dipped further from 6.0% in 3QFY2012 (10.5% as of 3QFY2011) to 5.0% in 4QFY2012. Disbursement growth to the individual segment (`6,345cr) was healthy during 4QFY2012 at 21.6% yoy (adjusted for one-off staff loan portfolio of `1,245cr acquired from LIC of India). In 3QFY2012, management had guided for ~`1,000cr of disbursals to high-yielding project loans during 4QFY2012; however, it disbursed only `274cr. LICHFs loan portfolio share to developers, which is generally higher yielding, has been on a declining trend since the last year, leading to slower rise in yield on assets for the company. The companys cost of funds have also risen significantly over the last year due to high interest costs over FY2012. Consequently, the companys NIM has been on a downward trajectory and was lower by 100bp yoy at 2.4% for 4QFY2012. LICHFs loan disbursement of ~`9,000cr under the dual rate fix-o-floaty scheme (given out at 8.9%) will start re-pricing upwards from 2QFY2013. Also, with interest rates expected to have a downward bias over FY2013-14, the cost of funds is expected to decline from here on. Accordingly, we have factored in a healthy NII CAGR of 27.5% over FY2013-14.

Exhibit 3: Disbursements to dev. segment remain weak

Individual (`cr) Project (`cr) Total yoy (%)

Exhibit 4: Advances growth remains healthy

Advances (`cr) Growth yoy (%, RHS)

8,000 6,000 4,000

33.2

40.0 30.0 20.0 4.5 2.7 10.0

75,000 60,000 45,000 34.2 32.1 29.3

40.0 36.0 32.0

51,090

52,876

56,098

58,707

6,461

3,468

4,736

4,568

2,000 -

6,345

0.9

(2.6)

26.6

15,000 -

63,080

30,000

28.0 23.5 24.0 20.0

(10.0) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

Source: Company, Angel Research

Source: Company, Angel Research

Extra provisions reversed during 4QFY2012

LICHF chose to utilize the extra provisions it is carrying on its balance sheet during 4QFY2012, leading to negative provisioning expenses of `2cr. The companys asset quality continued to be stable, with gross NPA at 0.42% (0.47% in 4QFY2011) and net NPA at 0.14% (0.03% in 4QFY2011). Provision coverage for LICHF as of 4QFY2012 stands at 66.7% (51.1% in 3QFY2012 and 93.7% in 4QFY2011).

April 25, 2012

LIC Housing Finance | 4QFY2012 Result Update

Exhibit 5: Asset quality remains stable

Gross NPA (`cr) Net NPA (`cr) PCR (%, RHS)

Exhibit 6: NPA ratio trend

Gross NPA % 1.00 0.80 0.60 0.40 Net NPA %

600

93.7 58.3

120.0 81.6 90.0

185

180

300

51.1

66.7

60.0 30.0

242 15

359 66

444

368

265

0.03

0.35

0.12

0.30

0.47

0.84

0.64

0.63

88

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

0.00

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 7: NIMs remain low during FY2012

4.00 3.25 2.50 1.75 1.00

Exhibit 8: NII yoy growth negative for 4QFY2012

NII (`cr) Growth yoy (%, RHS)

3.30

3.01 2.93 3.14

3.45 2.78 2.45 2.27 2.44

600 40.8

0.42 405

0.20

24.2 300 7.0 20.0

(15.8) (20.0) 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

481

416

388

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

Source: Company, Angel Research

3QFY12

Source: Company, Angel Research

Investor concerns
Concerns on the regulatory front
LICHF did not make any teaser loan provision on its Advantage-5 product, as it had not been notified by the NHB to do so. The company has replaced Advantage5 by a new non-teaser plan Freedom; however, the threat of NHB classifying the loans disbursed via the Advantage-5 plan as teaser still remains. Also, capital adequacy requirements are relatively less strict for HFCs (12% CAR required with no specific requirement for tier-1 capital) as compared to NBFCs (15% CAR required, 10% minimum tier-1 in case of IFCs and 15% CAR required, 12% minimum tier-1 in case of gold loan financing NBFCs). The companys estimated tier-1 ratio for FY2012 is ~9.8% (including annual profits and `804cr infused through preferential allotment to LIC). Considering LICHF is leveraged 11-12 times, the company might have to raise additional capital in future if CAR requirements are raised.

April 25, 2012

376

(7.0)

0.14
60.0 40.0

LIC Housing Finance | 4QFY2012 Result Update

Outlook and valuation

LICHF has been able to grow its loan book at a 30.2% CAGR over FY2008-12, driven by a strong parent brand, success of its home loan products (~20% of its loan book comprised teaser loans as of FY2012) and strategic focus on tier-2 and tier-3 cities to sell its home loans. At the CMP, the stock is trading at a P/ABV multiple of 1.7x FY2014E ABV of `156.0cr. Historically, the stock has traded at 0.8-2.1x one-year forward P/ABV multiple over FY2006-12, with a median of 1.4x, but it has been rerated over the past three years to 1.9x average. With loan growth expected to be healthy over FY2013-14 (factored in a 24% CAGR) and considering that interest rates have a downward bias going ahead, we recommend Accumulate on the stock with a target price of `286.

Exhibit 9: Change in estimates

Particulars (` cr) NII Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Angel Research

Earlier estimates
1,925 224 2,149 275 1,874 151 1,723 447 1,276

FY2014 FY2013 Revised Earlier Revised Var. (%) Var. (%) estimates estimates estimates
1,877 230 2,108 287 1,821 153 1,668 433 1,235 (2.5) 2.8 (1.9) 4.4 (2.8) 1.4 (3.2) (3.2) (3.2) 2,394 268 2,662 327 2,335 159 2,175 565 1,611 2,326 281 2,607 341 2,265 178 2,087 542 1,545 (2.8) 4.9 (2.1) 4.4 (3.0) 11.9 (4.1) (4.1) (4.1)

Exhibit 10: 1-Yr forward P/ABV band

Price (`) 0.8x 1.2x 1.7x 2.2x 2.7x

400 350 300 250 200 150 100 50 -

Dec-07

Aug-09

Mar-09

Nov-10

May-08

Source: Bloomberg, Angel Research;

April 25, 2012

Dec-12

Apr-06

Apr-11

Jul-07

Oct-08

Feb-07

Sep-06

Feb-12

Sep-11

Jan-10

Jun-10

Jul-12

LIC Housing Finance | 4QFY2012 Result Update

Income statement
Y/E March (` cr) NII - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY09 796 28.7 91 26.3 887 28.4 154 15.3 732 31.6 5 (78.4) 727 36.6 195 26.8 532 37.3 FY10 937 17.6 137 51.1 1,073 21.1 192 24.2 882 20.4 (28) NA 910 25.2 249 27.4 662 24.6 FY11 1,441 53.8 331 141.4 1,771 65.0 216 12.9 1,555 76.3 261 NA 1,294 42.1 320 24.7 974 47.2 FY12 1,431 (0.6) 193 (41.6) 1,624 (8.3) 237 9.7 1,387 (10.8) 156 (40.2) 1,231 (4.9) 317 25.7 914 (6.2) FY13E 1,877 31.2 230 19.4 2,108 29.8 287 21.0 1,821 31.3 153 (2.0) 1,668 35.5 433 26.0 1,235 35.1 FY14E 2,326 23.9 281 22.0 2,607 23.7 341 19.0 2,265 24.4 178 16.7 2,087 25.1 542 26.0 1,545 25.1

Balance sheet
Y/E March (` cr) Share Capital Reserve & Surplus Loan Funds - Growth (%) Other Liabilities & Provisions Total Liabilities Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets FY09 85 2,149 25,422 25.0 1,727 29,382 1,129 27,679 26.2 35 539 29,382 FY10 95 3,293 34,758 36.7 2,096 40,242 1,389 38,081 37.6 36 736 40,242 FY11 95 4,074 45,163 29.9 4,298 53,630 1,403 51,090 34.2 47 1,090 53,630 FY12* 101 5,581 48,521 7.4 10,226 64,430 300 63,080 23.5 62 988 64,430 FY13E 101 6,531 60,166 24.0 13,095 79,893 374 78,219 24.0 75 1,225 79,893 FY14E 101 7,719 74,606 24.0 16,641 99,067 463 96,992 24.0 93 1,518 99,067

Note:*FY12 balance sheet numbers as per revised schedule VI

April 25, 2012

LIC Housing Finance | 4QFY2012 Result Update

Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE Asset Quality (%) Gross NPAs Net NPAs Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 3.0 0.0 3.0 0.0 3.0 0.3 3.3 0.6 2.8 0.7 2.0 13.0 26.2 2.7 (0.1) 2.8 0.0 2.8 0.4 3.2 0.6 2.6 0.7 1.9 12.4 23.5 3.1 0.6 2.5 0.4 2.9 0.3 3.2 0.5 2.8 0.7 2.1 12.4 25.8 2.4 0.3 2.2 0.0 2.2 0.3 2.5 0.4 2.1 0.5 1.5 12.0 18.6 2.6 0.2 2.4 0.0 2.4 0.3 2.7 0.4 2.3 0.6 1.7 11.7 20.1 2.60 0.20 2.40 0.00 2.40 0.31 2.71 0.38 2.33 0.61 1.73 12.4 21.4 20.6 4.9 1.0 18.5 3.6 1.2 12.6 2.9 1.4 14.3 2.3 1.4 10.6 2.0 1.9 8.4 1.7 2.4 12.5 52.6 2.6 13.9 71.3 3.0 20.5 3.5 18.1 3.6 24.5 131.3 4.9 30.6 154.9 6.1 87.8 112.1 1.07 0.21 80.4 0.69 0.12 82.6 0.47 0.03 93.7 0.44 0.14 75.0 0.43 0.09 80.0 0.48 0.10 80.0 3.1 17.4 2.0 26.2 2.7 17.8 1.9 23.6 3.1 12.2 2.1 25.8 2.5 14.6 1.5 18.6 2.6 13.6 1.7 20.1 2.6 13.1 1.7 21.4 FY09 FY10 FY11 FY12 FY13E FY14E

April 25, 2012

LIC Housing Finance | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

LIC Housing Finance No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 25, 2012