Net Interest Margin expansion for LIC Housing Finance was driven by improvement in both—cost of funds and yield on assets, says Nomura Equity Research
LIC Housing Finance (LICHF) reported robust 4QFY13 numbers, driven by expansion in NIM (net interest margin) and lower than expected provisions. Net profit of Rs320 crore was largely driven by 10.4% beat in NII (net interest income) as NIM expanded 36 bps (basis points) sequentially to 2.45%. Asset quality improved during the quarter with GNPLs (gross non-performing loans) declining 12.5% sequentially to Rs470 crore. Loans were up 23.4% year-on-year with disbursals growth of 28.62% year-on-year. These observations were made by Nomura Equity Research in its Quick Note on LICHF.
NIM expansion was driven by improvement in both—cost of funds and yield on assets. Yield improved by 3bps quarter-on-quarter to 10.78%, while cost of funds declined by 27bps to 9.4% quarter-on-quarter. Consequently, spreads improved from 1.07% in 3Q13 to 1.38% in 4QFY13, point out Nomura Equity Research analysts.
Loan growth of 23.4% year-on-year was higher than Nomura’s expectation of 21.4% year-on-year; with disbursal growth of 16.7% year-on-year (disbursal growth in the retail segment was at 18.8% year-on-year). Sanctions grew 30.2% year-on-year. Loan growth was largely driven by continued traction in retail loans that grew 25.5% year-on-year (sequential increase of 7.5%); however, the higher yielding developer/ project loans declined 5.5% quarter-on-quarter (decline of 16.3% year-on-year). The developer/ project loans as a proportion of total loans declined further to 3.4% from 3.9% in the previous quarter.
Operating expenses and employee costs were marginally higher than Nomura’s expectations, with a cost-income ratio of 18.6% (down 113bps year-on-year). The brokerage further computes the total CAR (capital adequacy ratio) as standing at 15.8%, with a tier-1 ratio of 10.7%.
The key ratios of LICHF are given below:
According to Nomura, the key issues to watch in LICHF management’s discussion on Monday (29 April 2013) include the following: further colour on delinquencies, plans for the project loan book, FY14 loan growth guidance, plans for fresh capital issuance and trajectory for margins.
LICHF currently trades at 1.6x of Nomura’s FY14F ABV of Rs157 and 7.8x of Nomura’s FY14F EPS of Rs31.8. Nomura’s target price of Rs295 implies multiples of 1.9x of Nomura’s FY14F ABV and 9.3x of Nomura’s FY13F EPS.
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