17 August 2013
1QFY14 Results Update | Sector:
Financials
LIC Housing Finance
BSE SENSEX
19,368
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
5,742
LICHF IN
504.7
91.4/1.5
300/154
-20/-28/-38
Financials & Valuation (INR b)
Y/E MAR
NII
PPP
Adj. PAT
Adj. EPS
(INR)
EPS Gr. (%)
RoAA (%)
RoE (%)
P/E (x)
P/BV (x)
2013 2014E 2015E
15.3
14.5
10.2
20.3
2.2
1.5
16.8
8.9
1.4
18.9
17.8
12.2
24.2
19.4
1.5
17.4
7.5
1.2
23.2
21.8
14.9
29.6
22.3
1.4
18.4
6.1
1.0
CMP: INR181
TP: INR260
Buy
BV/Sh (INR) 128.3 149.3 173.1
LIC Housing Finance’s (LICHF) 1QFY14 PAT stood at INR3.1b, up 36% YoY and down
2% QoQ (in line with our est. of INR3.1b). Strong loan growth of 22% YoY and 3%
QoQ, led to marginally higher-than-expected NII growth of 30% YoY and flat QoQ
to INR4.54b (3% above est). Seasonal deterioration in asset quality (GNPAs up 38%
QoQ) led to higher-than-expected provisioning of INR171m (v/s est. of INR100m).
Loan growth remained strong (up 22% YoY and 3% QoQ) driven by a robust 24%
YoY and 3.5% QoQ increase in individual loans. Builder loans continued to contract
for the 11
th
consecutive quarter (down 21% YoY and 9.6% QoQ) and now
constitute 3% of overall loans, against 3.4% in 4QFY13 and 4.6% in 1QFY13.
NII grew by 30% YoY and remained largely flat QoQ at ~INR4.54b, led by 12bp YoY
margin expansion to 2.3%. While reported yields increased 10bp YoY to 10.79%,
reported cost of funds remained same at 9.58%.
Asset quality witnessed seasonal deterioration, with absolute GNPAs/NNPAs
increasing 37%/112% sequentially, while GNPAs/NNPAs percentage stood
0.80%/0.52, a decline of 19/16bp sequentially.
Valuation and view:
Despite high interest rates and property prices, volume
growth in the individual loan segment remains fairly strong. Meanwhile,
disbursements in the builder segment continue to remain sluggish. We expect
RoAs to remain healthy at ~1.5% and RoEs at ~18%, after falling sharply in FY13,
and estimate adjusted earnings growth of 20% over FY14E-15E. We believe loan
growth will remain healthy, with asset quality intact in the ensuing quarters. At a
valuation of 1x FY15E BV, the stock is attractively valued and largely discounts the
concerns. Maintain
Buy
with a target price of INR260 (1.5x FY15E BV).
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through disclosures made at the end of the Research Report.

LIC Housing Finance
Individual loan growth strong; developer segment remains sluggish
Loan growth remained strong (up 22% YoY and 3% QoQ) driven by a robust
+24% YoY and 3.5% QoQ increase in individual loans. Builder loans continued to
contract for the eleventh consecutive quarter (down 21% YoY and 9.6% QoQ)
and now constitute 3% of overall loans against 3.4% in 4QFY13 and 4.6% in
1QFY13. Sequentially loans increased by INR23.2b, while the borrowings by
INR24.7b.
Disbursements grew by 7% YoY (though down 33.6% QoQ – seasonal in nature)
to INR51.2b led by 13.4% YoY growth in individual segment. while the
disbursements in the builder segment remained sluggish as it stood at INR 0.58b
de-grew 69% QoQ and 82% YoY.
Seasonal deterioration in asset quality
Asset quality witnessed seasonal deterioration with absolute GNPA/NNPA
increased 37%/112% sequentially, % GNPA/NNPA stood 0.80%/0.52 an decline
of 19/16bps sequentially. One developer loan account worth INR 60m slipped
during the quarter; GNPAs in Developer Loans segment include three major
accounts amounting to INR2.3b which slipped in 3QFY13; these accounts are
backed by adequate collaterals and action under SARFAESI Act has been
initiated.
Provisioning expenses for the quarter stood at INR171m as compared with
provisioning write back of INR35m in 4QFY13. Notably the Provision coverage
ratio also declined to 36% Vs 59% during last quarter.
NII growth led by strong loan growth coupled with margin improvement
NII grew by 30% YoY and remained largely flat QoQ at ~INR4.54b (3% above
est.); led by +22% YoY increase in loan book coupled with 12bp YoY margin
expansion to 2.3%. While the reported yields increased 10bp YoY to 10.79%,
reported cost of funds remained same at 9.58%.
17 August 2013
2

LIC Housing Finance
1QFY14 Conference call highlights
Loan book & Growth
Growth: Expect a 20%+ loan growth in FY14
Increase focus on high yielding products like LAP and developer loan in FY14;
Targeting to LAP from existing 3% of loan book to 5% in FY14
Average yield on LAP portfolio is 13-13.5%
Fixed rate loan book forms 51% of retail loan book i.e. ~INR400b.
Bhagyalakshmi: Sanctioned INR50b and disbursements of INR 35b, Superchoice
O/S portfolio of INR 60b.
Management will revisit pricing if the rates continue to remain high.
Asset Quality
GNPAs in Developer Loans segment include three major accounts and 3 minor
accounts amounting to INR2.46b; the big accounts are backed by adequate
collaterals and action under SARFAESI Act has been initiated.
Provisioning pool on individual portfolio stands at INR6.6b whereas INR0.52b on
developer loans.
Borrowings & Cost of funds
LICHF has completed 1/3 (INR 88b) annual borrowing requirement before 15th
July at blended rate of 8.8%. YTD borrowings stands at INR 110b (~40% of FY14
target borrowings of INR 280b)
Borrowing cost on INR88b borrowed before 15th July stood at 8.8% and INR20b
borrowed after 15th July stood over 10%. Majority of incremental borrowing
from bonds. Incremental spreads for the quarter stood at 1.8%
Other highlights
Retail deposit scheme rolled out from 20 branch; initial response is very
encouraging. O/S retail deposits stands at INR 9b
Incremental ticket size INR1.7m.
Prepayment ratio at 6% of which half are takeover by competitors.
Sanctions INR 50.74 in individual segment and INR 1b in developer segment.
Borrowings Break-up
Banks:25% (@ 10.6%)
Bonds: 65.8% (@ 9.43%)
NHB: 3.5% (@ 8.95%)
17 August 2013
3

LIC Housing Finance
Valuation and view
Despite high interest rates and property prices, volume growth in the individual
loan segment remains fairly strong. Meanwhile, the disbursements in the
builder segment continue to remain sluggish.
LICHF continues to deliver well in terms of growth, further margin improvement
led to improvement in the operating performance. We expect margins to
remain stable at current levels. Going forward, the key to margin improvement
is (1) Full impact already reprised portfolio in FY14 (2) higher incremental
spreads of 1.5% (3) Improvement in liquidity situation. Nevertheless, on back of
tight liquidity conditions currently we factor in stable margins over the next 3
quarters.
We expect RoA’s to remain healthy at ~1.5% and RoE’s at ~18% after dropping
sharply in FY13. We expect adjusted earnings growth of 20% over FY14-15E. we
believe healthy loan growth to remain healthy, with asset quality remains intact
in ensuring quarters and at valuation of 1x FY15 BV, it is attractively valued and
largely discounts the concerns. Maintain
Buy
with a target price of INR260 (1.5x
FY15E BV).
Dupont analysis (%)
LIC Housing Finance
Interest Income
Interest Expended
Net Interest Income
Non interest Income
Fee Income
Treasury Income
Other Income
Net Income
Operating Expenses
Cost to income (%)
Operating Profits
Provisions/write offs
PBT
Tax
Tax Rate
PAT
Leverage (x)
RoE
FY08
10.17
7.40
2.77
0.68
0.26
0.30
0.12
3.45
0.67
19.39
2.78
0.12
2.66
0.72
27.26
1.93
11.87
22.94
FY09
11.03
8.09
2.93
0.62
0.27
0.26
0.09
3.56
0.62
17.29
2.94
0.02
2.92
0.78
26.79
2.14
12.26
26.19
FY10
9.98
7.28
2.70
0.57
0.39
0.14
0.04
3.26
0.58
17.85
2.68
-0.09
2.77
0.76
27.36
2.01
11.70
23.52
FY11
10.22
7.08
3.14
0.91
0.34
0.14
0.43
4.05
0.49
12.21
3.55
0.60
2.96
0.73
24.71
2.23
11.58
27.22
FY12
10.77
8.26
2.51
0.42
0.24
0.14
0.04
2.92
0.43
14.60
2.50
0.28
2.22
0.57
25.73
1.65
11.28
20.32
FY13
10.89
8.65
2.24
0.29
0.23
0.09
-0.02
2.53
0.41
16.25
2.12
0.12
2.00
0.51
25.51
1.49
11.26
16.82
FY14E
FY15E
10.96
10.53
8.71
8.29
2.26
2.24
0.25
0.24
0.12
0.12
0.15
0.13
-0.02
-0.02
2.51
2.48
0.38
0.37
15.29
14.91
2.13
2.11
-0.06
0.10
2.19
2.01
0.59
0.54
27.00
27.00
1.60
1.47
11.96
12.72
17.43
18.36
Source: Company, MOSL
17 August 2013
4

LIC Housing Finance
Individual disbursements (INR b)
FY11
FY12
FY13
FY14
Developer disbursements (INR b)
75
65 63
13
FY11
FY12
FY13
FY14
57
45
30
35
47
38
57
42
46
55
4
1
1Q
2Q
3Q
4Q
3
1
4
1
2Q
4
2
5
3 3
2
1Q
3Q
4Q
Individual segment disbursements continue to grow at strong pace + Builder loans continues to remain sluggish and now constitute 3% of
24% YoY & +4% QoQ
overall loans
Loan growth remains healthy at ~22% YoY
Loans (INR b)
YoY Gr. (%)
Reported margins improve YoY (%)
3.0 2.9 3.1
3.5
2.8
2.5 2.3 2.4
2.5 2.3
2.2 2.1 2.1
37
36
36
34
32
29
27
23
24
23
24
23
22
Loan growth remained strong (up 22% YoY and 3% QoQ) driven by a
robust +24% YoY and 3.5% QoQ increase in individual loans
Margins improve 12bp YoY to 2.3% on back of increase in yields
by 10bp YoY to 10.79%.
Seasonal deterioration in Asset quality QoQ (%)
GNPA (%)
NNPA (%)
Proportion of developer drops further (%)
Asset quality witnessed seasonal deterioration with absolute
GNPA/NNPA increased 37%/112% sequentially, % GNPA/NNPA
stood 0.80%/0.52 an decline of 19/16bps sequentially.
Builder loans continued to contract for the eleventh consecutive
quarter (down 21% YoY and 9.6% QoQ) and now constitute 3% of
overall loans against 3.4% in 4QFY13 and 4.6% in 1QFY13.
17 August 2013
5

LIC Housing Finance
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
24.2
29.6
Consensus
Forecast
25.8
30.9
Variation
(%)
-6.4
-4.1
Stock performance (1-year)
Shareholding pattern (%)
Jun-13
Promoter
Domestic Inst
Foreign
Others
40.4
13.2
33.8
12.6
Mar-13
40.4
12.3
34.1
13.3
Jun-12
40.3
9.1
37.5
13.1
17 August 2013
6

LIC Housing Finance
Financials and valuation
17 August 2013
7

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LIC Housing Finance
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LIC HOUSING FINANCE LTD
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17 August 2013
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8