LIC Housing Finance Ltd Share:Target Price of Rs. 264

ACCUMULATE the Stock..! Report by angel Broking..!

LIC Housing Finance (LICHF) reported a disappointing set of numbers for

3Q FY 2013, as growth in its net interest income and operating profit, came below

our expectations at 11.3 % and 8 % year on year, respectively. Provisioning expenses

jumped up to Rs. 32cr (as the company had to provide roughly Rs. 24cr on three

chunky slippages on the developer loan book) and hence earnings plunged by

22.7 % year on year, a bigger decline than expected.

NIM flat quarter on quarter ; Asset quality faces stress due to chunky slippages: LICHFL’s loan

book grew strongly by 23.8 % year on year to Rs. 72,704 cr during 3Q FY 2013. Loans to the

individual segment grew by 26.7 % yoy, while loans to the developer segment

declined by 20.1% yoy (although higher sequentially by 6.0 %). Hence, the share

of developer loans to overall loans improved slightly from 3.8 % in 2QFY2013 to

3.9 % for 3Q FY 2013. The margins were down 18bp yoy to 2.09 % (largely flat

sequentially), primarily on account of interest reversal of Rs. 6 cr on the slippages

witnessed in the developer loan book.

The reported cost of funds remained elevated at 9.67 %. Going forward, the Management expects to increase the proportion of developer loans to 5 % by FY 2014 from the current 3.9 %, which in

our view should give a marginal push to its margins.

During the quarter, the LIC HFL witnessed asset quality deterioration, as gross and net NPA levels were higher sequentially by 30.2 % and 68.0 %, respectively, on an absolute basis.

Slippage of three chunky developer accounts worth Rs. 160 cr from the legacy

book resulted in a substantial increase in NPA levels. The Management is

confident of recovering these slipped accounts in the next few quarters, as it has

adequate collaterals. The gross NPA ratio increased by 0.14% sequentially and

0.11% year on year to 0.74 %, however a decline in provision coverage ratio (39.1 % in

3Q FY 2013 compared to 51 % in 3Q FY 2012) led the NPA ratio to increase by

0.17% quarter on quarter and 0.15% year on year to 0.45 % in 3Q FY 2013.

Outlook and valuation:

 We expect the company to post a healthy loan book growth of 24 % for FY 2013 and 22 % for FY 2014. We have however lowered our FY 2013 and FY 2014 PAT estimates by 3.4 % and 5.7 %, respectively, considering the expectation of moderate and gradual improvement in the NIM. Still FY 2014 earnings are likely to increase by 23.6 % year on year, aided by a healthy growth of 22 % in

the loan book.

At the CMP, the stock is trading at a P / ABV multiple of 1.7 x

FY 2014 E ABV.

Historically, the stock has traded at 0.8-2.1 x one-year forward

P/ABV multiple over FY 2006-FY 2012, with a median of 1.4x.

We recommend an Accumulate rating on the stock with a target price of Rs. 264.

ACCUMULATE

CMP Rs. 246

Target Price Rs. 264

Investment Period 12 months

Stock Info

Sector:  HFC

Market Cap (Rs.cr) 12,397

Beta 1.1

52 Week High / Low 300 / 228

Avg. Daily Volume 475,434

Face Value (Rs.) 2

BSE Sensex 19,501

Nifty 5,898

Reuters Code LICH.BO

Bloomberg Code LICHF@IN

Shareholding Pattern ( %)

Promoters 40.3

MF / Banks / Indian Fls 11.4

FII / NRIs / OCBs 35.8

Indian Public / Others 12.5

Abs.        (%) 3m  1yr  3yr

Sensex  6.5 6.6 19.4

LICHF    (1.5) (8.8) 61.5

Report by

Mr. Vaibhav Agrawal

022 – 3935 7800 Ext: 6808

vaibhav.agrawal@angelbroking.com

Mr. Sourabh Taparia

022 – 3935 7800 Ext: 6872

sourabh.taparia@angelbroking.com

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