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Published on 14/02/2020 10:19:49 AM | Source: HDFC Securities Ltd

Neutral LIC Housing Finance Ltd For Target Rs.471 - HDFC Securities

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Structural weakness

The dual trend of slowing growth and asset quality deterioration at LICHF persisted into 3QFY20. Maintain NEUTRAL with a TP of Rs 471 (1.25x Dec-21E ABV of Rs 377).

 

HIGHLIGHTS OF THE QUARTER

* Asset Quality Trends Worrisome: Gross Stage III increased by ~16% QoQ (2.5x YoY) to ~Rs 56.2bn (2.7%). Of this, ~Rs 1.8bn relates to cases where multiple a/cs, in which only part of the total o/s has slipped. Sequential deterioration was led by the individual segment (1.9% GNPAs, +50bps QoQ) - we find this worrisome. While developer NPAs were stable QoQ (14.8%), they contributed significantly to YoY deterioration (2.9x YoY). Stage II assets jumped 31/22% YoY/QoQ to 5.72%. This could be a precursor of the stress to follow. We are compelled to increase our GNPA estimates further, to 2.8% by FY21E.

* Provisions Jump: 3QFY20 saw the highest ever nontax provisions at ~Rs 3.9bn (3x/+39%, 80bps ann.). This is not too surprising, given the considerable build up in stress that it has seen over the trailing year. This resulted in a ~230bps QoQ rise in calc. PCR to ~45%. Interestingly, o/s Stage I& II provisions dipped ~70% QoQ to ~Rs 330mn implying a coverage of just 2 bps. We model LLPs of ~60bps over FY20-22E and estimate a PCR of 53% by FY22E.

* Muted Growth: Overall loan growth slowed to ~13% YoY (vs. ~15% in 2Q) as a consequence of muted disbursal growth (+3/8%, due to a YoY dip in project disbursals) and a sharp QoQ rise in repayment rates (5%, led by the developer book). Individual loan growth (+13/2%) remains tepid with core individual home loans growing ~13% YoY. This is in sharp contrast to growth in bank credit for housing. The developer book dipped ~3% QoQ, which is likely to be on a/c of stress faced by the segment. We model an AUM CAGR of 14% over FY20-22E.

 

STANCE

LICHF’s performance trajectory across fronts, over the past few qtrs points to structural weakness. Our NEUTRAL stance is premised on the continued rise in bad loans (particularly sharp rise in LICHF’s core segment this qtr) accompanied by slower loan growth (as banks appear to be grabbing m-share) and possible margin stress.

 

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