For 3QFY2016, LIC Housing Finance (LICHF) reported an earnings growth of
21.7% yoy with healthy growth of 35.0% yoy in net interest income, led by healthy
growth in advances and stable margins.
NII rises yoy; Impressive NIMs
LICHF’s loan book grew at a healthy pace of 15.2% yoy to Rs1,17,396cr during
3QFY2016. The individual portfolio, which constitutes 97% of the total loan book,
grew by 15% yoy. Loans to the developer segment, which saw a reversal trend
from the past quarter, continued its upward momentum growing by 20% yoy to
Rs3,091cr. Total disbursements growth was of ~10% yoy. Margins during the
quarter were at 2.58% as compared to 2.20% in the corresponding quarter of the
previous year. A significant decline in the cost of funds to 9.18% as compared to
9.59% in the corresponding previous year period along with increase in floating
rate loans to 40% of the total loan portfolio aided the company in registering a
healthy growth in the NIM by 38bp yoy to 2.58%.
On the asset quality front, the Gross NPA ratio came in at 0.58% which declined
by 2bp qoq, whereas the Net NPA ratio was stable at 0.32%. Provisions rose to
Rs34.4cr compared to Rs6.8cr for 3QFY2015 and Rs30.1cr for 2QFY2016.
Outlook and valuation: For companies like LICHF, the funding environment has
eased; thus it will lead to lower cost of borrowing, while outlook for growth in
retail housing loans remains positive, going forward. We expect the company to
post a healthy loan book CAGR of 18.7% over FY2015-17E, which is likely to
reflect in an earnings CAGR of 21.0% over the same period. The stock currently
trades at 2.2x its FY2017E ABV. We maintain our Buy rating on the stock, with a
target price of Rs592.

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