Cholamandalam Securities' research report on LIC Housing Finance
LICHF’s loan book grew by 1.6% YoY to INR 1.98tn, largely led by Developers Loans and LAP segments which grew at 61.8% YoY and 24% YoY respectively. LAP’s share in the overall portfolio has grown 90bps YoY to 16.9% and that of developer (project) loans by 190bps YoY to 6.9%. The management expects the affordable housing segment to drive the loan book to growth in FY20E. Disbursements saw a growth of 16.4% YoY to INR 197bn in 1QFY20, of which INR 184bn came from individual loan and INR 13bn from project loan disbursements. Sequentially, overall disbursements grew by 6%, owing to a favorable base in 1QFY19. Borrowings grew by 17.1% YoY and stood at INR 1.73tn. The borrowing mix altered marginally in 1QFY20, with greater dependence on NCDs still intact (72.6% of total borrowings from 74.3% in 1QFY19). However, sequentially Commercial Paper as a % of total borrowings, increased to 6% from 4% in 4QFY19. In 1QFY20, weighted average cost of funds (WACF) inched up by 17bps YoY to 8.46%. Yields also increased by 26bps YoY led by high yielding assets (project & LAP). The PLR was hiked by 70bps in FY19, the effect of which has fully reflected on NIMs in 1QFY20. Hence, NIMs improved to 2.35%, up by 3bps YoY and down 19bps QoQ. Going forward the management expects NIMs to be maintained at 2.4%.
Outlook
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.
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