Hold LIC Housing Finance Ltd For Target Rs. 450 - Emkay Global
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Disappointing quarter marred by weak growth and surge in NPAs
* LICHF reported a PAT of Rs1.53bn (-81.2% yoy, -61.5% qoq) in Q1FY22 vs. our estimate of Rs8.2bn amid elevated provisions and one-off employee expenses. The board has approved wage revisions (wef August 1, 2017). Accordingly, the company has provided Rs1.24bn on an estimated basis, resulting in a sharp rise in operating expenses.
* Disbursements declined ~61.3% qoq (+143% yoy) to Rs86.5bn due to seasonal weakness in Q1 and the impact of lockdowns. Loan book stood at ~Rs2,326bn (+10.8% yoy, flat qoq) amid lower repayments. Margins dipped ~46bps qoq to ~220bps as low-interest retail loans squeezed lending yields.
* Stage 3 NPAs surged to 5.93% vs. 4.12% in Q4FY21, with GNPA for Individual home loans at ~ 2.6%, LAP at 10.9% and project loans at 24.4%. Restructured book stood at Rs53.5bn (~2.3% of loans), with a probable rise under OTR 2. Credit cost during the quarter stood at ~144bps vs. ~25bps in FY21.
* We remain concerned about LICHF’s asset quality, considering subdued underwriting and inadequate provisioning (PCR of 33.5% in Q1FY22) due to weak adequacy. We cut our estimates by ~7.5%/8.5% for FY23/24. We roll forward to Sep’22E with a revised TP of Rs450, corresponding to ~1.1x Sep’23E ABV. Maintain Hold and EW in NBFC EAP.
Weak business growth amid lockdowns:
LICHF’s disbursements declined ~61.3% qoq (+143% yoy) to Rs86.5bn due to seasonal weakness in quarter and the impact of lockdowns on demand. Overall loan book stood at ~Rs2,326bn (+10.8% yoy, flat qoq) amid lower repayments. The share of retail home loans increased qoq to ~78.3%, LAP decreased marginally to ~15%, whereas Developer Finance also decreased marginally to ~6.7% (compared to last quarter’s mix of 77.9%, 15.3% and 6.8%, respectively).
Asset quality trends volatile; watch out for resolution in developer book:
We have been cautious on the company’s asset-quality profile for some time. Though the housing loan book is safe, we do await resolution in developer book NPAs (~18.9% of the wholesale portfolio). NCLT resolutions and lending through the SWAMI scheme announced by SBI and LIC (parent) would be key things to watch out for in the near term.
Outlook and valuation:
LICHF’s inability to improvise the margin profile significantly is concerning. The company had done preferential allotment of 45.4mn shares to the promoter (LIC). However, considering demand environment and elevated NPAs, we believe LICHF may need additional capital. We cut our estimates by ~7.5%/8.5% for FY23/24. We roll forward to Sep’22E with a revised TP of Rs450, corresponding to ~1.1x Sep’23E ABV. Maintain Hold and EW in NBFC EAP.
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