>LIC HOUSING FINANCE (ICICI DIRECT)

Margins disappoint albeit business growth…

LIC Housing Finance (LICHF) reported a PAT growth of 18.3% YoY as against our expecations of Rs 160 crores . The disappointment in PAT was owing to the fall in NIM’s which led to lesser than expected NII growth of 7.3% YoY. The silver linning was the spurt in mortage portfolio, which grew 29% YoY (in line with estimates). NIM’s declined by 21 bps YoY and 52 bps QoQ. The fall in margins was mainly due to aggressive cutting of PLR’s and overhang of high cost borrowings of previous quarters. On the asset quality front the GNPA and NNPA stood at 1.51% (2.2% in Q1FY09) and 0.65% (1.2% in Q1FY09) respectively.

Highlight of the quarter
The mortgage loan portfolio grew 30% YoY to Rs 29542 crore with sanctions and disbursement growing by 99% and 60% YoY respectively. Retail sanctions grew by 92% YoY. Special housing loan schemes coupled with overhang of high cost borrowing had taken toll on the margins to 2.45% in Q1FY10. Asset quality YoY has improved on relative as well as absolute basis.

Valuations
LICHF has significantly grown its loan portfolio over the past few quarters and expects a 30%-40% growth in its core business in the current fiscal with the help of low cost special housing loan schemes. Though this will negatively impact margins in the medium term, but the accretion in market share will offset the loss in margins to some extent and keep the growth ticking. We expect the company to deliver ROE’s in the range of 20%-21% post dilution. We therefore value the core business of LICHF at 1.5x its FY11E ABV to arrive at Rs. 573 for core business value. We also ascribe value to 20% stake held in LIC Mutual fund and revise the price target to Rs.600 per share and assign a Hold rating.

To see full report: LIC HOUSING FINANCE