COMPANY BACKGROUNDIncorporated in 1989, LIC Housing Finance is one of the largest housing finance companies in India providing long term finance for purchase, construction, repair and renovation of houses. The company also grants finance on existing property for business and personal needs and also to professionals for purchase or construction of Clinics, Nursing homes, Diagnostics Centres, Office Spaces and also purchase of equipments. LIC Housing possesses one of the industry's most extensive marketing networks with 13 back offices, 181 marketing units, 773 direct sales agents, 3400 home loan agents and 615 customer relationship associates. It has also set up representative offices in Dubai and Kuwait to cater services to Non-Resident Indians. Till date, LIC `Housing has given financial assistance to over 10 lacs home owners.
LIC Housing came out with an IPO in 1994 and launched it maiden GDR in 2004. The company holds 100% stake in LIC Housing Finance Ltd Care Homes and LIC Housing Financial and Services.
Shares of LIC Housing were split from the face value of Rs 10 into five equity shares having nominal value of Rs 2-/ share.
Key Highlights:
LIC Housings total income for Q4FY11 grew by 40.7% y-o-y to Rs 1354.3Cr, with net interest margins of 3.45% in Q4FY11 as compared to 3.3% same quarter last year. While the average cost of funds increased by 43 bps from 7.59% in Q4FY10 to 8.01% in Q4FY11, the average yield on assets improved by 44 bps y-o-y from 10.18% in Q4FY10 to 10.62% in FY11, resulting into a marginal improvement of 1 bps in the interest spread, reported at 2.61% in Q4FY11.
Net interest income (Interest earned less interest expended) rose by 41% to Rs 420.36 Cr y-o-y supported by 50% rise in interest income from project loans and 39.4% rise in interest income from retail loans y-o-y basis.
The operating profit for Q4FY11 was up by 33.8% y-o-y and 11.18% q-o-q with a marginal growth of 11.3% in processingfees during the quarter despite on decent growth in sanctions and disbursements mainly due to the decline in project sanctions and disbursements where the fees are lump sum. Also the growth was supported by decline in 15% staff cost during the quarter.
Provisions and write-offs for the quarter stood Rs 18.85 Cr a substantial reduction q-o-q basis on account of higher provisioning in Q3FY11 due to regulatory changes made by NBH under which housing finance companies arerequired to make standard asset provisioning of 2% on teaser loans and 0.4% on corporate loans. Advantage 5 product contributed ~80% of the total loan disbursement in Q4FY11, but the company has not yet received any confirmation from NBH claiming it a teaser loan, however LIC Housing feels its excess provision of more than Rs10 Cr in the balance shall take care of it, if NBH classifies Advantage 5 scheme as teaser loans. In FY11, LIC Housing made a provision of Rs 260 Cr towards its three year dual home rate scheme. The provision coverage increased to 93.8% in Q4FY11 from 73.2% in Q3FY11.
Other income in Q4FY11 was substantial on account of profits made on sale of investments. In Q3FY11, the number was higher as LIC Housing sold its partial stake of 17.3% in LIC Mutual Fund to Nomura reporting huge profits under sale of investments.
During the quarter, PAT increased by 47.4% y-o-y to Rs 314.72 Cr on account of one time profit earned on sale of investment of Rs 32.13 Cr, however excluding this, adjusted PAT grew by 36.4% to Rs 283.72Cr.
The EPS for Q4FY11 stood at 6.1 as against Rs 4.5 same quarter previous year.
LIC Housing witnessed decent growth in sanctions and disbursements which grew by 26% and 34%in Q4FY11 y-o-y despite of significant decline in sanctions and disbursements of project loans by 59.5% and 74% y-o-y respectively. The fall was mainly on account of cautious approach adopted by LIC Housing in respect of irregularities of loans payment given to developers.
However, retail sanctions and disbursements strongly grew by 36.9% and 70.7% y-o-y respectively which drove the overall sanctions and disbursement during the quarter.
The retail loan growth looked impressive with a growth of 37.6% y-o-y and 12.5% q-o-q while project loans witnesses slowdown q-o-q basis. The increment in the individual loans boosted the overall loan book at Rs 51089 Cr for Q4FY11. The developer loan proportion stood at 8.5% down from 10.5% in Q3FY11 and 10.9% in Q4FY10. The yields on advances for projects are relatively higher at 13.5%-14% as compared to individual loans at 9%-10%. LIC Housing's 50% total loan portfolio is on floating basis.
Company's ~50% of the borrowing portfolio is on fixed rate. LIC Housing borrowings as of Q4FY11 -27.8% Banks -58.4% NCD's -3.5%NHB's -1.7% LIC -8.6% Balance ( subordinates debts, public deposits, CP's etc)
NIMs improved by 31 bps q-o-q basis mainly on account of higher lending rates, retirement of some high cost borrowings and Rs 12bn home loan portfolio taken over by its parent LIC.
LIC Housing Finance witnessed high asset quality improvement on q-o-q and y-o-y basis. In Q3FY11, the company stated that the security on loan given to developers was more than twice the loan value.
Improvement in Gross NPA's with higher provisioning coverage resulted in overall improvement in Net NPA's
Strengths
Strong loan growth: Sanctions grew by 26% y-o-y to 5809 Cr primarily on account of 37% growth in individual loans; while disbursement grew by 34% y-o-y with 71% growth in individual loans to Rs 6794Cr. Loan book grew by 34% y-o-y to Rs 51090Cr. On sequential basis individual loans grew by 12.5% while project loans remained flat at Rs 4359Cr. However the management expects this growth to resume in coming quarters. Total outstanding borrowings stood at Rs 45162 Cr, up by 30% y-o-y.
Decline in Cost-to-income ratio y-o-y, improves asset quality
On Y-o-Y basis, LIC Housing Finance managed to control its operating expenses on back of 37% decline on advertisement expense and marginal rise of 4.7% in other expenditure with 15.4% in overall operating expenses. Also gain on sale of investments in the quarter helped to maintain its cost-income ratio at 13% for FY11. Asset quality remained stable with Gross NPA at Rs 241.96 Cr for Q4FY11 as against Rs 312.68 same quarter previous year. In percentage terms Net NPA significantly reduced from 0.18 to 0.03 in Q4FY11, q-o-q portraying strong asset quality base.
New scheme 'Freedom'
Under the 'Freedom' scheme, the housing finance company (HFC) will give home loans up Rs 30 lakh at the current PLR (13.75 per cent) less 385 basis points, that is, at 9.90 per cent. Home loans above Rs 30 lakh and less than 75 lakh will be available under the scheme at PLR less 340 basis points, that is, 10.35 per cent. Loans above Rs 75 lakh and up to Rs 1.50 crore will be available at PLR less 300 basis points, that is, 10.75 per cent. The new product is to shift provision requirements by one year. Concerns
Increasing interest rates scenario may impact demand for fresh loans
Substantial decline in project loans sanctions & disbursements impacting the NIM's as yields for project loans are higher as compared to that of individual loans
Increasing competition from State owned banks may pressurize yields and spreads, going forward.
Recommendation
LIC Housing Finance reported strong growth in sanctions and disbursement in FY11 increasing its overall mortgage portfolio by 34% y-o-y along with high asset quality maintained. The company expects a growth of 25% in loan disbursements going forward. Thus as the company continues on its growth trajectory, a BUY rating is recommended with a target price of 320 at 2.5 x its FY13 BV of 126.
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