1QFY21 Result Update

LIC Housing Finance

Remain cautious
26 August 2020

Sanket Chheda
Research Analyst
sanket.chheda@bksec.com
+91-22-4031 7276
1QFY21 Result Update

LIC Housing Finance

CMP (Rs): 299 Market cap. (Rs bn): 151 Target price (Rs): 280 Maintain SELL

First Cut Feel of the Results

• AUM as of 1QFY21 stood at ~Rs 2,098 bn which grew by 6% YoY and -0.4% QoQ.
• Asset quality stayed unchanged in 1QFY21 at 2.83%, PCR ratio on Stage.3 assets as of 1QFY21 stood at
~44.9%. Negligible provisioning on Stage.1 and Stage.2 assets.
• Capital adequacy ratio as of 1QFY21 stayed at 13.9% with Tier-1 of 12.2% (regulatory requirement on total
CRAR is 14% by the end of FY21).
• Currently, ~25% of overall loans in terms of value stood under moratorium, while 16% of individual loans
are under moratorium.
• Reported Net Interest Margins as of 1QFY20 stood at 2.32%, whereas cost of funds stood at 7.87%.

Financial highlights Key variables

(Rs mn) Q1FY20 Q1FY21 YoY (%) Q4FY20 QoQ (%) Improvement on (%)
B&K est. Consensus
Interest Earned 48,072 50,037 4.1 49,202 1.7
NII 11.5 –
Interest Expended 36,026 37,645 4.5 37,642 –
Operating Profit 6.4 –
NII 12,046 12,392 2.9 11,559 (10.0) Adjusted PAT 51.4 –
Other Income – (262) – (332) –
FY20 FY21E FY22E
Total Income 48,072 49,775 3.5 48,869 1.9 Valuations

Total Net Income 12,046 12,130 0.7 11,227 20.0 P/BV (x) 0.8 0.8 0.8
PER (x) 6.3 13.3 6.4
Staff Expenses 612 796 30.0 877 (9.2)
Dividend/Yield (%) 2.3 2.3 2.3
Other Op. Exp. 491 593 20.8 1,811 (67.2) Key Ratios
Operating Profit 10,943 10,741 (1.8) 8,540 (25.0) NIM (%) 2.4 2.3 2.3
RoA (%) 1.1 0.5 1.0
Provisions 2,533 565 (77.7) 273 107.2
RoE (%) 13.9 6.2 12.3
Provision for tax 2,302 2,002 (13.0) 4,053 (50.6)
Book Value (Rs) 360 369 386
Reported Profit 6,107 8,175 33.9 4,214 94.0 Adj. Book Value (Rs) 316 286 303

Trailing Price/Book Relative performance

4.0 600
3.5 500
3.0 400
2.5 300
2.0
200
1.5
100
1.0
0.5 0
25-May-20
15-Feb-20

11-Mar-20

05-Apr-20
27-Dec-19
02-Dec-19

30-Apr-20

14-Jul-20

08-Aug-20
21-Jan-20

19-Jun-20

0.0
Apr-12

Apr-13

Jan-20
Dec-15

Dec-16

Aug-20
Jan-18

Jan-19
Oct-11

Oct-12

Nov-13

Nov-14
Mar-11

Jul-18

Jul-19
May-14

May-15

Jun-16

Jun-17

Price/Book (x) Mean LIC Housing Finance (Actual)

+1 std dev -1 std dev Sensex (Rebased)

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1QFY21 Result Update
LIC Housing Finance

Is it in the Price?
While reported earnings performance came in better but we feel it’s largely optical on below grounds:
a) NII outperformance due to absence of delinquencies on account of loans being under moratorium.
b) Operating expenses lower on the back of lockdown, which resulted in fewer working days and lower
utilisation.
c) Provisioning (ex-Stage.3 assets) still remains very low (mere Rs 2.7 mn on Rs 2,039 bn of standard assets).
No contingent provision created in the last two quarters.
Also, no further deterioration in asset quality is largely on account of loans under moratorium. Today’s
relief rally was mainly on the back of no negative surprise on asset quality and optically better earnings
show.
Connecting the Dots
• Loan growth falls to 6% YoY: Loan growth drops further to 6.1% YoY/-0.4% QoQ, with higher growth in
Developer book over Individual book. Disbursements were down 65% YoY and 69% QoQ. Pure Individual
loan growth at 6.9% YoY/-0.5% QoQ (share at 76.8% versus 76.9% sequentially). Retail LAP and others at 1.7%
YoY/-1.0% QoQ (share at 16.2% versus 16.3% sequentially). Developer book at 7.6% YoY/2.6% QoQ (share at
7.0% versus 6.8% sequentially). 25% of the overall loans are under moratorium. 80% of the project loans,
35-40% of LAP loans and 16% of Individual loans stayed under moratorium.
• Moratorium led to stable asset quality: Stage.3 assets stayed at 2.83%. While Stage.2 assets dropped
70 bps sequentially to 4%.Pure Individual GNPA were stable at 1.2% while developer GNPA stood at 17.6%.
Coverage inches up sequentially by 110 bps to 44.9% (still remains second best in HFC space after
HDFC Ltd. at 48%). But negligible provisioning against Stage.2 assets with no contingent provisions is a
deterrent. The company holds a provision of mere Rs 2.7 mn on the standard assets pool of Rs 2,038 bn.
We expect the delinquencies to materialise in 2HFY21 and provisioning would entail significant drag on
earnings thereon.
• Increasing share of developer book still a concern: Total developer book currently stands at Rs 146 bn,
which accounts for 7.0% of the total loan book. The share of developer book has gone up materially in the
last two years. Also, currently the loan growth in developer book has been higher than that of individual
loan growth (at 8% YoY/3% QoQ). GNPA in developer segment in 1QFY21 stood at 17.7% as compared to 17%
in 4QFY20. Continued higher growth in project loans makes it difficult to ascertain the direction or the
intent of the management, which remains a key concern.
• NIMs inches up on falling cost of funds and increased utilisation: Margins went up by 22 bps sequentially
at 2.32% but were down 9 bps YoY. Incremental cost of funds coming down by 21 bps sequentially
to 7.87% as yields too went up by 13 bps to 10.15%. But LIC Housing Finance (LICHF) being the relatively
higher ticket market, tough competition from banks (particularly public banks) would continue to keep
margins under pressure going ahead. Hence, we do not see material upside in margins for near-term
with expected higher delinquencies.
Outlook and Recommendation
Stress formation in recent quarters has been from the developer book; about 45% of outstanding
GNPA/Stage.3 comes from developer book that accounts for ~7% of the book. Despite the higher share
of developer exposure in the stress of LICHF’s own book coupled with challenging macro, it has posting
higher loan growth in developer book in line with the individual segment. This is worrisome and further
dampens the confidence on future asset quality. Also, despite having advantage of relatively easy and

3
1QFY21 Result Update
LIC Housing Finance

cheaper funding availability on the back of strong parentage, it has not been able to translate it into a
robust growth amidst vacated space by many weaker HFCs. We therefore continue to remain unclear
about its way ahead, both on business and asset quality front. Hence, despite pretty cheap and below
mean valuations it is not making a case to either buy or own the stock. Currently, the stock trades at P/B
of 1.0x on FY22E ABV and our implied multiple on target price of Rs 280 comes to P/B of 0.9x on FY22E ABV.

AUM growth remians muted Benign cost of funds

2,500 20 11 2.4
10 2.2
2,000
15 2.0
9
1,500 1.8
10 8
1.6
1,000 7 1.4
5 6 1.2
500
5 1.0
0 0

Q4FY19

Q2FY20
Q2FY19

Q1FY20
Q1FY19

Q3FY20

Q1FY21
Q4FY20
Q3FY19
Q4FY19

Q2FY20
Q2FY19

Q1FY20
Q1FY19

Q3FY20

Q1FY21
Q4FY20
Q3FY19

Yield (%) Cost of Funds (%)

Loan book- Rs Bn Growth YoY (%)-RHS Spread- RHS (%)

Source: Company, B&K Research

Moratorium restricts further deterioration Margins uptick on increased utilisation

3.0 50 3.0
2.5 40 2.5
2.7 2.8 2.8
30
2.0 2.4 2.0
20
1.5 2.0 1.5
10
1.0 1.5 1.0
1.2 1.3 0
1.2
0.5 (10) 0.5
0.8
0.0 (20) 0.0
Q4FY19

Q2FY20
Q2FY19

Q1FY20
Q1FY19

Q3FY20

Q1FY21
Q4FY20
Q3FY19
Q4FY18

Q4FY19

Q2FY20
Q2FY19

Q1FY20
Q1FY19

Q3FY20

Q1FY21
Q4FY20
Q3FY19

GNPA (%) NII Growth (%) NIM (%) -RHS

Source: Company, B&K Research

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1QFY21 Result Update
LIC Housing Finance

Key trends and ratios

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Loan book (Rs bn) 1699 1774 1817 1946 1978 2030 2057 2106 2098
YoY (%) 16 17 16 16 16 14 13 8 6
QoQ (%) 1 4 2 7 2 3 1 2 0
Disbursement (Rs bn) 96 143 128 186 103 122 132 113 36
YoY (%) 10 30 4 7 7 (15) 3 (39) (65)

QoQ (%) (45) 49 (11) 46 (45) 19 8 (14) (69)

Loan mix (%)
Retail Home loans 79 78 77 76 76 77 77 77 77

Retal LAP /other 16 16 17 17 17 17 16 16 16

Developer loans 5 6 6 7 7 7 7 7 7
Profitability (%)
Yield on advances 10.2 10.2 10.5 10.5 10.5 10.3 10.3 10.0 10.2
Cost of funds 8.3 8.3 8.5 8.5 8.5 8.4 8.2 8.1 7.9
Spread 1.9 1.9 2.0 2.0 2.0 2.0 2.0 1.9 2.3
Net Inetrest Margins 2.3 2.4 2.3 2.6 2.4 2.4 2.4 2.1 2.3

Customer segment
Salaried 87 86 85 85 86 85 85 85 88
Non-salaried 13 14 15 15 14 15 15 15 12
Ticket size- Incremental (Rs mn) 22 24 23 24 23 24 24 24 24

Borrowings
Toatal Borrowings (Rs bn) 1,477 1,545 1,603 1,706 1,730 1,788 1,850 1,912 1,883
YoY (%) 14 16 16 17 17 16 15 12 9
QoQ (%) 2 5 4 6 1 3 3 3 (2)
Borrowings mix (%)
Bonds (Incl. sub debt) 74 68 74 75 73 72 68 65 62
Term loan 12 16 14 15 14 15 19 22 20
NHB 1 1 1 1 1 1 1 1 5
Deposits 5 4 5 4 5 6 6 7 8
Others 8 10 6 5 7 6 6 5 5
Asset quality (%)
GNPA 1.21 1.20 1.26 1.53 1.98 2.38 2.73 2.83 2.83
NNPA 0.83 0.54 0.41 0.75 1.09 1.35 1.49 1.59 1.56
PCR 32 55 68 51 45 43 45 44 45
Source: Company, B&K Research

5
1QFY21 Result Update
LIC Housing Finance

Major shareholders (%) Relative to Sensex 3 Years

Mar 20 Jun 20 Change 1,000

800
Promoters 40.3 40.3 0.0
600
GOI 0.0 0.0 0.0
400
FIIs 32.3 34.3 2.0 200

MFs 8.2 4.7 (3.5) 0

Apr-18

Apr-19

Jan-20
Jan-18

Aug-20
Oct-17

Oct-18

Jan-19

Oct-19

May-20
Mar-17

Jul-17

Jul-18

Jul-19
BFSI's 5.8 5.9 0.1

Public & Others 13.4 14.8 1.4 LIC Housing Finance (Actual)
Sensex (Rebased)
Pledge 0.0 0.0 0.0

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1QFY21 Result Update
LIC Housing Finance

Income Statement Key Ratios

Yr end 31 Mar (Rs mn) FY19 FY20 FY21E FY22E Yr end 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Interest Income 172,561 196,054 202,538 215,504 Operational & financial ratios (Rs)

Interest Expended 128,916 147,839 155,068 164,944
Net Interest Income 43,646 48,215 47,470 50,561
Growth (%) 21.7 10.5 (1.5) 6.5
Other operating income 348 394 305 519
Income from investment 107 59 1,222 1,249
Other Income 601 191 125 125
Total net income 44,702 48,859 49,122 52,454
Growth (%) 20.9 9.3 0.5 6.8
Operating expenses 4,609 6,160 6,653 7,318
- Staff Expenses 2,479 2,990 3,229 3,552
- Other Expenses 2,130 3,170 3,424 3,766
Depreciation 117 481 125 125
Pre-Provision Profit 39,975 42,218 42,344 45,011
Provisions & Contingencies 6,180 9,527 24,977 11,506
Profit before tax 33,795 32,691 17,368 33,504
Provision for tax 9,486 8,672 5,992 10,026
Adjusted Net profit 24,310 24,019 11,376 23,478
Growth (%) 21.4 (1.2) (52.6) 106.4
Extraordinary Items (4.6) (68.5) 0.0 0.0
Reported Net Profit 24,314 23,951 11,376 23,478
Growth (%) 21.3 (1.5) (52.5) 106.4
EPS 48.1 47.6 22.5 46.5
BV 322.0 360.3 368.9 386.2
ABV 294.4 315.9 286.1 303.2
DPS 8.2 7.0 7.0 7.0
Valuation ratios (x)
PER 6.2 6.3 13.3 6.4
P/BV 0.9 0.8 0.8 0.8
P/ABV 1.0 0.9 1.0 1.0
Yield (%) 2.7 2.3 2.3 2.3
Spread Analysis (%)
Yield on Assets 9.7 9.9 9.8 9.9
Cost of funds 8.2 8.2 7.9 7.9
Spread 1.5 1.7 1.8 2.0
Net Interest Margin 2.4 2.4 2.3 2.3
Credit Cost 0.34 0.48 1.18 0.51
Profitability Ratios (%)
RoAA 1.3 1.1 0.5 1.0
RoAE 15.9 13.9 6.2 12.3
Int Expensed/Int Earned 74.7 75.4 76.6 76.5
Capitalisation ratios (%)
Tier I cap.adequacy 12.6 12.2 12.2 11.8

Total cap.adequacy 14.8 13.9 13.7 13.3

Balance Sheet
Total assets/Equity 11.4 11.5 11.8 12.0
Yr end 31 Mar (Rs mn) FY19 FY20 FY21E FY22E
Loans/Assets 96.2 95.9 96.1 96.3
Capital 1,010 1,010 1,010 1,010
Borrowings/Assets 85.1 88.3 88.6 90.0
Reserves & Surplus 161,583 180,921 185,285 194,022
Asset quality ratios (%)
Networth 162,593 181,931 186,295 195,032
GNPA 1.5 2.8 5.1 5.2
Borrowings 1,706,670 1,913,316 1,990,420 2,179,462
NNPA 1.1 1.6 2.9 2.7
Current Liabilities & Prov. 136,572 72,808 69,825 47,088
NNPA / Net worth 12.8 18.4 33.5 32.1
Total Liabilities 2,005,835 2,168,055 2,246,540 2,421,582
Provision Coverage 30.0 43.8 45.0 50.0

Efficiency ratios (%)
Advances 1,929,927 2,079,880 2,158,170 2,331,506
Cost/Income 10.3 12.6 13.5 14.0
Investments 37,802 54,964 56,147 57,440

Fixed assets 1,373 2,543 1,402 1,458 Cost/Assets 0.2 0.3 0.3 0.3

Deferred tax asset 5,534 5,200 3,550 1,900 Productivity ratios (Rs mn)

Current Assets, Loans 31,198 25,468 27,270 29,279 Assets per employee 869 906 1,070 1,153

and advances Staff cost per employee 1.1 1.3 1.5 1.7

Total Assets 2,005,834 2,168,055 2,246,540 2,421,583 Adjusted net profit per employee 10.5 10.0 5.4 11.2

7
1QFY21 Result Update
LIC Housing Finance

B&K Universe Profile – by AMFI Definition

140
116
120

no. of companies
100
74 78
80
60
40
20
0
Top 100 Next 150 Residual
(Large Cap) (Mid Cap) (Small Cap)

B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.

B&K Investment Ratings

LARGE CAP MID CAP SMALL CAP

(Market Cap > USD 2 bn) (Market Cap of USD 200 mn to USD 2 bn) (Market Cap <USD 200 mn)
BUY >+20% (absolute returns) >+25% (absolute returns) >+30% (absolute returns)
OUTPERFORMER +10% to +20% +15% to +25% +20% to +30%
UNDERPERFORMER +10% to -10% +15% to -15% +20% to -20%
SELL <-10% (absolute returns) <-15% (absolute returns) <-20% (absolute returns)
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8
1QFY21 Result Update
LIC Housing Finance

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