LIC Housing Finance
BSE SENSEX
24,188
S&P CNX
7,351
18 January 2016
Update
| Sector:
Financials
CMP: INR463
TP: INR539 (+16%)
Buy
3QFY16 Concall highlights: Profitable growth to continue
Focus on margin and profitability; non-core products to drive loan growth
Stock Info
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
LICHF IN
505.0
240.9/3.8
526 / 389
1/14/9
1161
59.7
Non-core loan products to drive loan book growth
Financials Snapshot (INR b)
Y/E March
2016E 2017E 2018E
NII
PPP
Adj. PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoAA (%)
RoE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
D.Yield (%)
30.0
27.7
16.9
33.5
25.8
181.9
1.5
19.9
20.3
13.8
2.5
1.3
36.1
33.5
21.2
42.0
25.4
1.5
21.2
20.3
11.0
2.1
1.6
40.7
37.6
24.0
47.5
12.9
Continues to focus on non-core products (LAP and developer loans) to drive
loan book growth. Expects to grow loan book at 15% YoY in FY16, with
developer loans growing at 25%+ YoY.
By FY16, LAP + developer loans would constitute 10%+ of the total loan book.
Yields for LAP and developer loans are ~200bp and ~400bp higher, respectively,
than individual home loans; thus margins are likely to improve.
The company does not chase market share, but would focus on improving
margins and profitability.
Property prices largely stable; affordable housing segment witnessing
builder interest
215.7 253.8
1.5
20.2
20.3
9.8
1.8
1.8
The company has not seen much price corrections in the market and expects
property prices to remain largely stable.
Builder interest in affordable housing is on the rise and LICHF would like to
cater to that segment.
The company does not see any dearth in growth for the next 3-4 years and
believes that there is room for new players to enter the market
Margins improve despite reduction in lending rates
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-15 Jun-15 Sep-14
40.3
7.6
35.4
16.7
40.3
7.3
37.4
15.1
40.3
7.3
39.0
13.5
Margins improved 38bp YoY to 2.58%. The improvement was on the back of
change in product mix (15bp), lower cost of funds (15bp) and conversion to
floating rate product (8bp).
The company has reduced its Prime Lending Rate (PLR) by 30bp during the
quarter on the entire book. Despite the reduction in lending rates, the
company’s margins improved as nearly 60% of the loan book is on fixed
interest rate.
FII Includes depository receipts
Stock Performance (1-year)
LIC Housing Fin.
Sensex - Rebased
570
500
430
360
Bank borrowings likely to reduce further by 100-150bp
Borrowing mix has moved further toward market instruments and bank
borrowing now stands at 12.5% of the total borrowing. The company would
like to reduce the same to 11-11.5% and maintain it at that level.
LICHF does not foresee any impact of recent SEBI guidelines on reducing MFs’
exposure toward NBFC papers as MFs have invested just around 14% of their
total investment in NBFC papers— much lower than the regulatory cap. Of the
outstanding NCDs of INR760b for LICHF, just around INR140b have been
subscribed by MFs; most of the NCDs are generally subscribed by banks.
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com) /
Harshvardhan Agrawal
(Harshvardhan.Agrawal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

LIC Housing Finance
Higher provisions; asset quality remains stable
Asset quality during the quarter remained stable at 0.58% GNPA and 0.32%
NNPA.
Provisioning expenses increased because of change in product mix. As share of
LAP loans increased, the company had to make standard asset provisioning at
1% instead of 0.4% for retail loans.
Repayment rate remains elevated at 11%
Repayment rates during the quarter remained elevated at 11%. LICHF is working
actively to arrest higher repayments by actively communicating with customers.
The company has also launched a product where the customer can move from
fixed rate to floating rate by paying a fee of just INR1000.
Other highlights
The highest selling product for the company yields 9.6% interest on retail loans
and is priced competitively. Nearly 60% of the incremental loans are sourced
under this product.
LTV for LAP is at a conservative 25% and average incremental ticket size of
INR1.5m. Nearly 70% of LAP customers belong to the salaried segment.
LICHF: Quarterly Performance
Y/E March
Interes t Income
Interes t Expens es
Net Interest Income
YoY Growth (%)
Fees a nd other i ncome
Net Income
YoY Growth (%)
Opera ti ng Expens es
Operating Profit
YoY Growth (%)
Provi s i ons a nd Cont.
Profit before Tax
Ta x Provi s i ons
Net Profit
YoY Growth (%)
Loa n Growth (%)
Borrowi ngs Growth (%)
Cos t to Income Ra ti o (%)
Ta x Ra te (%)
1Q
24,826
19,764
5,062
11.3
610
5,672
12.9
699
4,973
12.7
92
4,882
1,659
3,223
3.8
16.8
16.4
12.3
34.0
FY15
2Q
25,961
20,643
5,318
17.3
626
5,944
11.7
965
4,980
8.8
-190
5,170
1,756
3,414
10.1
17.2
17.4
16.2
34.0
3Q
26,678
21,192
5,486
19.9
680
6,166
18.1
882
5,283
17.7
68
5,215
1,772
3,443
5.4
18.0
16.4
14.3
34.0
4Q
28,002
21,504
6,498
21.9
604
7,102
17.7
1,339
5,763
15.4
10
5,753
1,971
3,782
2.2
18.6
17.7
18.9
34.3
1Q
29,174
22,585
6,589
30.2
481
7,069
24.6
835
6,234
25.3
443
5,790
1,969
3,821
18.6
17.9
17.8
11.8
34.0
FY16
2Q
30,260
23,091
7,169
34.8
634
7,803
31.3
1,060
6,743
35.4
301
6,442
2,325
4,117
20.6
17.0
15.2
13.6
36.1
(INR Million)
FY15
3Q
31,018
23,549
7,469
36.2
549
8,018
30.0
1,214
6,804
28.8
344
6,460
2,271
4,189
21.7
15.2
14.6
15.1
35.2
4QE
33,391
24,612
8,779
35.1
632
9,411
32.5
1,485
7,926
37.5
442
7,484
2,466
5,018
32.7
18.5
19.7
15.8
33.0
105,467
83,102
22,364
17.8
2,520
24,884
15.2
3,885
20,999
13.7
-20
21,019
7,158
13,862
5.2
18.6
17.7
15.6
34.1
FY16E
123,843
93,837
30,006
34.2
2,296
32,302
29.8
4,594
27,707
31.9
1,530
26,177
9,031
17,146
23.7
18.5
19.7
14.2
34.5
18 January 2016
2

LIC Housing Finance
Exhibit 1: Quarterly Snapshot
2Q
Profit and Loss (INR m)
Interest Income
- Individual
- Projects
Interest Expenses
Net Interest Income
Fees and others
Net Income
Operating Expenses
Employee
Others
Operating Profits
Provisions
PBT
Taxes
PAT
Asset Quality
GNPA (INR m)
NNPA (INR m)
Gross NPAs (%)
- Individual
- Projects
Net NPAs (%)
PCR (Calculated, %)
Margins (%) - (calculated)
Yield on loans
Cost of funds
Spreads
NIMs (reported)
Other Details
Cost to Income (%)
Tax Rate (%)
FY14
3Q
FY15
4Q
1Q
2Q
3Q
26,678
25,829
849
21,192
5,486
680
6,166
882
364
519
5,283
68
5,215
1,772
3,443
4Q
28,002
27,117
886
21,504
6,498
604
7,102
1,339
356
983
5,763
10
5,753
1,971
3,782
1Q
29,174
28,291
883
22,585
6,589
481
7,069
835
317
518
6,234
443
5,790
1,969
3,821
FY16
2Q
30,260
29,362
898
23,091
7,169
634
7,803
1,060
362
698
6,743
301
6,442
2,325
4,117
3Q
31,018
30,050
967
23,549
7,469
549
8,018
1,214
432
782
6,804
344
6,460
2,271
4,189
Variation (%)
QoQ
YoY
3
2
8
2
4
-13
3
15
19
12
1
15
0
-2
2
16
16
14
11
36
-19
30
38
19
51
29
406
24
28
22
22,237 23,120 24,074 24,826 25,961
21,420 22,302 23,238 24,013 24,918
817
818
837
813
1,042
17,703 18,543 18,743 19,764 20,643
4,534 4,577 5,331 5,062 5,318
787
644
705
610
626
5,321 5,221 6,037 5,672 5,944
744
733
1,043
699
965
280
240
255
281
293
464
492
788
419
672
4,577 4,488 4,993 4,973 4,980
341
-75
-223
92
-190
4,237 4,563 5,216 4,882 5,170
1,136 1,297 1,516 1,659 1,756
3,101 3,266 3,700 3,223 3,414
6,111
3,644
0.73
0.46
0.10
0.4
40.4
7,042
4,419
0.81
0.40
0.14
0.5
37.2
6,090
3,536
0.67
0.27
0.13
0.4
41.9
7,534
4,570
0.80
0.40
0.15
0.5
39.3
6,110
3,167
0.63
0.38
0.10
0.3
48.2
5,795
3,166
0.57
0.33
0.10
0.3
45.4
4,947
2,344
0.46
0.24
0.09
0.2
52.6
6,591
3,598
0.60
0.36
0.10
0.3
45.4
6,830
3,690
0.60
0.33
0.11
0.3
46.0
6,820
3,740
0.58
0.32
0.10
0.3
45.2
0
1
-3
-3
-3
0
-2
18
18
2
-3
5
3
0
10.9
9.7
1.2
2.2
10.9
9.7
1.2
2.2
10.8
9.4
1.5
2.4
10.7
9.6
1.2
2.2
10.9
9.7
1.2
2.2
10.7
9.5
1.2
2.2
10.7
9.2
1.5
2.5
10.7
9.3
1.4
2.4
10.8
9.3
1.5
2.6
10.7
9.2
1.6
2.6
-1
-1
2
1
0
-3
27
17
16.4
26.8
16.0
28.4
19.6
29.1
13.8
34.0
18.1
34.0
16.1
34.0
20.6
34.3
12.7
34.0
14.8
36.1
16.3
35.2
10
-3
1
3
Source: MOSL, Company
18 January 2016
3

LIC Housing Finance
Exhibit 2: Valuation matrix
66
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
DCBB
FB
JKBK
SIB
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
CRPBK
ANDB
IDBI
DBNK
Public Aggregate
HDFC*
LICHF
DEWH
IHFL
GRHF
REPCO
RECL
POWF
SHTF
MMFS
BAF
MUTH
SKSM
NBFC Aggregate
Rating
Buy
Buy
Buy
Neutral
Buy
Buy
Under Review
Neutral
Neutral
Buy
Buy
Under Review
Neutral
Buy
Under Review
Buy
Under Review
Buy
Neutral
Buy
Neutral
Neutral
Under Review
Buy
Buy
Buy
Buy
Buy
Under Review
Under Review
Buy
Buy
Buy
Buy
Buy
CMP
Mcap
EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
FY17
0.90
3.11
1.50
3.20
1.71
2.66
1.08
0.93
0.45
0.58
2.12
0.66
0.39
0.26
0.66
0.29
0.33
0.21
0.30
0.25
0.26
0.36
0.28
0.53
3.23
2.15
0.94
2.17
8.29
3.19
0.54
0.50
1.49
1.80
3.47
1.13
3.38
1.95
RoA (%)
FY16
1.49
1.88
1.61
1.11
1.60
1.92
0.95
0.77
1.00
0.55
0.67
0.50
-0.26
0.36
0.31
0.55
0.45
0.48
0.42
0.55
0.23
0.06
2.42
1.48
1.27
3.73
2.13
2.08
3.21
3.08
2.08
1.93
3.12
2.60
5.55
FY17
1.54
1.86
1.65
1.40
1.70
2.04
0.93
0.83
1.02
0.58
0.78
0.64
0.10
0.55
0.46
0.66
0.56
0.62
0.57
0.62
0.34
0.38
2.51
1.54
1.29
3.85
1.98
2.28
2.45
2.63
2.29
2.22
2.92
2.85
5.59
RoE (%)
FY16
14.1
18.4
16.7
13.9
18.9
16.7
10.2
8.4
12.3
9.4
10.9
7.8
-6.3
6.9
6.5
11.2
8.0
7.5
9.5
10.3
3.7
1.2
23.6
19.9
15.6
24.9
28.3
16.8
22.8
20.5
14.0
11.5
19.9
14.0
25.8
FY17
15.0
19.3
17.5
14.5
21.0
15.9
10.8
9.5
12.4
10.3
12.7
10.1
2.7
10.5
9.8
13.2
10.3
10.2
12.9
12.2
5.7
8.0
22.3
21.2
17.2
23.6
27.8
20.7
17.6
17.2
15.0
13.3
18.8
16.1
27.2
(INR) (USDb) FY16
223
19.6 20.7
1,029
39.1 49.1
374
13.4 33.9
667
18.5 19.2
656
4.2
57.3
896
8.0
39.0
73
0.3
5.9
48
1.3
3.9
69
0.5
16.2
18
0.4
2.5
105.1
181
21.3 23.2
91
2.7
15.9
93
1.1 -21.1
127
4.4
11.6
178
1.4
34.8
112
1.2
32.1
105
0.5
36.4
90
0.7
20.2
38
0.1
12.6
51
0.5
17.8
55
1.3
5.3
35
0.3
1.5
35.5
1,134
27.1
35
463
3.5
34
191
0.8
26
657
4.2
53
234
1.3
7
580
0.5
24
185
2.8
63
162
3.2
54
765
2.6
62
216
1.8
12
5,496
4.4
224
175
1.1
19
478
0.9
25
55.4
FY17 FY16
24.8 7.1
59.3 21.0
40.8 11.0
26.0 34.7
74.5 11.4
50.1 23.0
6.9 12.4
4.7 12.3
18.0 4.3
3.1
7.1
16.5
31.0 7.3
22.8 5.8
9.3
-4.4
19.3 10.9
57.3 5.1
43.1 3.5
50.0 2.9
29.5 4.5
18.7 3.0
22.8 2.9
8.5 10.4
10.0 24.1
8.5
41
19.9
42
13.8
33
7.3
68
12.3
8
35.2
35
24.6
57
2.9
52
3.0
73
12.3
15
17.9
276 24.5
24
9.4
34
19.5
12.7
FY17 FY16 FY17 FY16
5.4
131 149 1.12
17.4 285 331 3.61
9.2
216 249 1.73
25.6 183 209 3.64
8.8
325 385 2.02
17.9 293 337 3.05
10.6
61
68
1.20
10.1
48
52
1.00
3.8
138 152 0.50
5.9
29
31
0.63
13.6
2.41
5.4
229 254 0.74
4.0
215 235 0.43
10.0 341 350 0.27
6.6
176 191 0.72
3.1
566 610 0.31
2.6
308 344 0.36
2.1
467 505 0.23
3.0
277 300 0.32
2.1
137 152 0.28
2.2
180 196 0.28
6.5
146 153 0.38
3.5
120 128 0.29
5.5
0.57
14.9 165 188 4.18
11.0 182 216 2.55
5.8
179 204 1.07
9.7
274 302 2.40
28.2
24
28
9.93
16.8 151 182 3.84
3.2
301 345 0.62
3.1
285 323 0.57
10.5 457 515 1.67
14.1 109 120 1.98
19.9 1,351 1,582 4.07
7.4
140 155 1.25
14.1 107 141 4.45
11.8
2.20
*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries
18 January 2016
4

LIC Housing Finance
Financials and valuations
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Fee Income
Income from Investments
Other Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Provisions/write offs
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Adjusted PAT
Change (%)
Proposed Dividend
2012
59,827
45,911
13,916
1.4
1,322
804
198
16,240
-8.3
2,371
13,870
-10.8
1,561
12,309
3,167
25.7
9,142
-6.2
10,011
-2.7
2,112
2013
74,591
59,246
15,345
10.3
1,549
617
-168
17,343
6.8
2,819
14,524
4.7
789
13,736
3,504
25.5
10,232
11.9
10,232
2.2
2,244
2014
90,733
71,744
18,990
23.8
1,080
1,083
450
21,603
24.6
3,133
18,470
27.2
215
18,255
5,083
27.8
13,172
28.7
12,017
17.4
2,657
2015
105,467
83,102
22,364
17.8
1,227
815
343
24,749
14.6
3,885
20,864
13.0
-20
20,884
7,158
34.3
13,727
4.2
13,466
12.1
3,022
2016E
123,843
93,837
30,006
34.2
1,477
750
69
32,302
30.5
4,594
27,707
32.8
1,530
26,177
9,031
34.5
17,146
24.9
16,936
25.8
3,496
2017E
144,770
108,649
36,121
20.4
1,821
850
69
38,860
20.3
5,388
33,472
20.8
737
32,734
11,293
34.5
21,441
25.0
21,231
25.4
4,371
(INR Million)
2018E
169,385
128,678
40,707
12.7
2,163
950
69
43,889
12.9
6,321
37,568
12.2
917
36,651
12,461
34.0
24,190
12.8
23,979
12.9
4,932
(INR Million)
2018E
1,010
127,153
128,163
1,662,609
18.7
1,790,772
3,099
8.0
1,807,184
18.7
905
-20,416
1,790,772
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Net Fixed Assets
Net Current Assets
Total Assets
E: MOSL Estimates
2012
1,010
55,812
56,822
560,873
24.2
617,695
13,750
-2.0
630,802
23.5
623
-27,481
617,695
2013
1,010
63,803
64,813
687,641
22.6
752,454
18,673
35.8
778,120
23.4
624
-44,963
752,454
2014
1,010
74,319
75,329
820,356
19.3
895,685
1,993
-89.3
913,410
17.4
756
-20,474
895,685
2015
1,010
77,174
78,184
965,319
17.7
1,043,503
2,371
19.0
1,083,610
18.6
797
-43,275
1,043,503
2016E
1,010
90,825
91,835
1,155,292
19.7
1,247,127
2,609
10.0
1,283,658
18.5
843
-39,982
1,247,127
2017E
1,010
107,894
108,904
1,401,159
21.3
1,510,063
2,869
10.0
1,522,999
18.6
879
-16,684
1,510,063
18 January 2016
5

LIC Housing Finance
Financials and valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield on loans
Avg. Yield on Earning Assets
Avg. Cost-Int. Bear. Liab.
Int. Spread on Hsg. Loans
Net Int. Margin on Hsg. Loans
Profitability Ratios (%)
Adj RoAE
Adj RoAA
Int. Expended/Int.Earned
Other Inc./Net Income
Efficiency Ratios (%)
Fees/Operating income
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset-Liability Profile (%)
Loans/Borrowings Ratio
Debt/Equity (x)
Gross NPAs (Rs m)
Gross NPAs to Adv.
Net NPAs (Rs m)
Net NPAs to Adv.
CAR
2012
10.5
10.2
9.1
1.4
2.4
2013
10.6
10.2
9.5
1.1
2.2
2014
10.7
10.5
9.5
1.21
2.25
2015
10.6
10.3
9.3
1.25
2.24
2016E
10.5
10.2
8.9
1.61
2.54
2017E
10.3
10.0
8.5
1.8
2.57
2018E
10.2
9.9
8.4
1.8
2.44
20.3
1.8
76.7
1.2
16.8
1.5
79.4
-1.0
17.2
1.5
79.1
2.1
17.5
1.4
78.8
1.4
19.9
1.5
75.8
0.2
21.2
1.5
75.0
0.2
20.2
1.5
76.0
0.2
2.1
14.6
30.6
2.0
16.3
32.1
1.2
14.5
33.1
1.1
15.7
34.1
1.2
14.2
33.8
1.2
13.9
34.6
1.3
14.4
35.4
112.5
9.9
2,652
0.4
849
0.1
13.0
113.2
10.6
4,712
0.6
1,953
0.3
12.5
111.3
10.9
6,090
0.7
3,534
0.4
11.5
112.3
12.3
4,947
0.5
2,344
0.2
10.5
111.1
12.6
5,489
0.4
2,744
0.2
10.5
108.7
12.9
6,130
0.4
3,065
0.2
10.5
108.7
13.0
6,740
0.4
3,370
0.2
10.5
Valuation
Book Value (INR)
Growth (%)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
Growth (%)
Price-Earnings (x)
Adj. EPS (INR)
Growth (%)
Price-Earnings (x)
Dividend Per Share
Dividend Yield (%)
E: MOSL Estimates
112.5
28.2
4.2
112.1
4.2
18.1
-11.7
25.8
19.8
-8.4
23.6
3.6
0.8
128.3
14.1
3.6
127.3
3.6
20.3
11.9
23.0
20.3
2.2
23.0
3.8
0.8
149.2
16.2
3.1
147.3
3.1
26.1
28.7
17.9
23.8
17.4
19.6
4.5
1.0
154.8
3.8
3.0
153.6
3.0
27.2
4.2
17.2
26.7
12.1
17.5
5.0
1.1
181.9
17.5
2.6
180.4
2.6
34.0
24.9
13.8
33.5
25.8
13.9
5.9
1.3
215.7
18.6
2.2
214.0
2.2
42.5
25.0
11.0
42.0
25.4
11.1
7.4
1.6
253.8
17.7
1.8
252.0
1.8
47.9
12.8
9.7
47.5
12.9
9.8
8.4
1.8
18 January 2016
6

LIC Housing Finance
NOTES
18 January 2016
7

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LIC HOUSING FINANCE
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