Monday, March 26, 2012

>LIC HOUSING: Disbursements towards individual segment is set to remain tad higher

  • LICHF raises Rs8.1bn via issue of 30mn equity shares to parent LIC India (2.0x/9.1x 1-yr forward PB/PE) and resulting in EPS dilution to the tune of 6% for FY12E
  • FY12/FY13 ABV estimates stand increased by 9%/7% resp. Capital infusion to enhance CAR by 200bps+ to ~16.5%. Factoring 26% CAGR in loan portfolio over FY11-13E
  • Competitive intensity expected to rise, longer than expected time frame for easing monetary policy and lower share of corporates loans to act as caveat for growth and margins
  • Remain wary on stock due to lower disbursement growth and easing return ratios. Valuations at 2.4x/2.0x FY12/FY13ABV leave limited room for upside. Maintain HOLD, tp of Rs260

■ Capital infusion much along the expected lines
LICHF has raised Rs8.1bn (~US$162mn) via preferential issue of 30mn equity shares to the promoter - LIC of India. The promoter shareholding posts the issues stands increased to 40.2% (36.5% pre-placement). The equity infusion has resulted in EPS dilution to the tune of 6% for FY12; CAR stands enhanced by 200bps+ to ~16.5%+. This enhanced capital adequacy ratio will aid 24% CAGR in balance sheet over FY11-13E. Our FY12E/FY13E BV estimates stand increased by 9%/7% respectively. LICHF has also passed an enabling resolution to raise capital via QIP, the quantum of which in our view
would be ~Rs2-3bn.

■ Disbursements growth to ease at 17%CAGR over FY11-13E
The soft interest regime and relatively affordable property prices had enabled LICHF to report healthy 33% /41% CAGR in loan portfolio / disbursements in FY08-11. However, in the backdrop of a) intensifying competition by Banks / FIs in the mortgage space (Bank credit to the sector is up 13.2% yoy against overall non-food credit growth at 15.9% as at Jan’12) b) longer than expected time frame for easing monetary policy rates and c) lower proportion of exposure to high-yielding corporate loans, we expect growth rates to ease. We expect LICHF to clock 17% CAGR in overall disbursements. The renewed focus towards increasing penetration and loan schemes targeted towards retail segment, disbursements towards individual segment is set to remain tad higher at 20% CAGR. Loan portfolio to witness 26% CAGR over FY11-13E

 Valuation and view
The stock has exhibited resilience in the recent times owing to its ability to generate superior return ratios (RoE / RoA at 20%+/2%) and stable asset quality (Q3FY12 GNPA at 0.6%). We however remain wary on the stock given lower margins (2.3% as at Q3FY12), limited exposure to high-yielding corporate segment (6% of book) and larger dependence on high cost of funds – Banks + NCD (80%+ of total borrowings). In FY10, LICHF had raised ~Rs6.6bn via QIP issuance of 10mn equity shares and resulting in equity dilution to the tune of 11%. The issue was priced at 1.9x 1-yr forward book. This time around, the capital dilution is a tad lower at 6%. However, the pricing is on a higher end at 2.0x 1-yr forward book which is also equivalent to its 1-yr forward P/B for past 3-yr average. In our view, a further re-rating of valuation multiple does not seem likely given constraints on competition, product portfolio and interest rate regime. In the backdrop of lower loan growth and easing return ratios, current valuations at 2.4x/2.0x FY12/FY3E ABV leave limited room for upside. Maintain HOLD, target price of Rs260.

To read full report: LIC HOUSING