LICHF currently trades at 1.3x valuations which seem to be reasonable considering the fact that LICHF its strong distribution network and comfortable liquidity situation. However, soft scenario in the builder loan segment and deterioration in the asset quality warrants caution. Performance pertaining to recoveries in retail and developer book, loan growth momentum in next few quarters would be key to watch. We thus maintain Hold rating on the stock with PT of Rs400.
With competition intensifying and asset re-pricing behind, we foreseepressures on both core growth and margins alike. While LICHF’s ability toraise funds remain strong, negative ALM mismatch on shorter buckets, higher gearing, coupled with increasing share of non-core book would only imply higher capital requirement ahead. Therefore, we built-in NIM pressures (2.2-2.3%), higher credit costs (avg 41bps) and overall loans restricting to ~16% growth over FY20-22E. While this will impede return profile, RoEs will be confined to 16% over next 3 years. Against this backdrop and as we rollover multiple to Sep’21 estimates, we arrive at price target of Rs 409 (earlier Rs417) valuing the stock at 1.1x PABV. Reiterate ACCUMUALTE.
We have retained our NII and PPOP estimates and revised our PAT estimates by -7.7%/-6.3%/-5.1% for FY20/FY21/FY22, respectively. We have retained Buy rating on LICHF, valuing the stock at 1.1x H1FY22E P/BV and revising our target price to Rs518 (from Rs528 earlier).
LICHF is expected to post a reasonably strong loan book growth (CAGR of 8% over FY19-21E) despite a high base owing to its well established branch network. Also, with 93% of the book at floating rates the company's NIMs are expected to remain in the range of 2.3 to 2.5% thereby painting a positive outlook for the company. The stock is currently trading at P/ABV of 1.5X, P/E of 8.3X FY21E. We rate the stock a BUY and arrive at a target price of INR 556 assigning a P/ABV of 1.7X on FY21E.Risks: Yield correction due to competition; asset quality risks due to increase of share in LAP & developer segment (which could also eat out larger chunk of capital- RWA).
Consolidation in smaller HFCs, steady floating rate loans and consistent non- individual loan traction (project loans grew 60%+ YoY) augmented businessmomentum for company. However, going ahead, banks’ competitive rates, continued developer book concerns should restrict NIMs to 2.3-2.4% and keep asset quality in check (1.6%-1.75%) over FY20-21E. These should pressurize RoAs, expect 1.2% over FY20-21E. Against this backdrop, we trim our multiple to 1.6x at Mar’21 PBV (earlier 1.7x) arriving at price target of Rs 550, maintain ACCUMULATE.
Asset quality pressures in wholesale book; cut estimates by 4-5% While the company’s operating performance has been steady, the continued increase in the GNPL ratio is concerning. Individual GNPL ratio has increased from 40bp to 125bp over the past two years. Corporate GNPL ratio, too, has been elevated at 10%+. Hence, we cut our FY20/21 EPS estimates by 4-5% to account for elevated credit costs. Buy with a target price of INR580 (1.4x FY21E BVPS).
Valuation & Outlook: LICHF’s developer and LAP portfolio has been witnessing traction and core individual book has been witnessing a moderation in growth. Long awaited margin uptick is seen but with a pinch of salt as developer portfolio rises. Given the liquidity pressure faced by other HFCs, LICHF is poised to gain market share. The recent hike in lending rates and gradual up-tick in market share are expected to provide a cushion to margins in spite of cost of funds rising. Accordingly, we expect PAT CAGR of 13.5% in FY19-21E to | 3129 crore. We revise our target price higher to | 540 (earlier | 475) valuing the stock at 1.4x FY21E ABV. We maintain HOLD recommendation.
While consolidation in smaller HFCs, increased floating rate loans and consistent non-individual loan traction augmented business momentum for company in Q4, banks’ competitive rates, continued developer book concerns should restrict NIMs (2.4-2.45% FY20-21E) and keep asset quality in check (1.5% FY21E) and therefore there exists limited levers to RoA (expect 1.2% over FY21E). With downside risk to return ratios, reiterate Accumulate for a price target of Rs 597 (unchanged) as we value the company at 1.7x at Mar’21 PBV
Over the past two years, the valuation of LICHF has corrected from 2.5x PB (1-year forward) to 1.4x currently. We believe the street is factoring in sustained spread compression over the medium-to-long term. With its strong parentage and AAA- credit rating since 2002, LICHF is better placed than peers. In addition, there are initial signs of softening balance transfer pressure. Key risks to our earnings stem from asset quality pressure and negative surprises from Ind-AS accounting (despite it being three quarters, some numbers are still volatile). Valuation at 1.4x FY20E P/B is attractive and risk-reward is favorable, in our view. We expect re-rating driven by stable earnings growth over the next 4-8 quarters. Maintain BUY with a TP of INR600 (1.5x Dec 2020E BVPS).