LIC Housing Finance: Loan growth, margin squeeze impacts performance

The moderation can be attributed largely to falling corporate disbursements in the period

LIC Housing Finance posted lower-than-expected results for the September 2012 quarter on the back of dwindling loan growth and lower margins. Not surprisingly, the stock ended flat at Rs 242.95 at the Bombay Stock Exchange (BSE) on Wednesday.

The net profit growth of 147% year-on-year (y-o-y) in the recently concluded quarter appears healthy given the previous corresponding period’s growth, which was impacted by a steep rise in provisions for bad loans done in order to comply with the change in provisioning requirements of NHB (National Housing Board).

Loan growth, however, was in-line with Street expectations (23% y-o-y growth), but this was LIC Housing Finance's lowest loan growth since the June 2010 quarter (when loans grew by 36.8%). Notably, this metric has fallen every quarter since June 2010 – with September 2012 quarter following the same trend. This is in sharp contrast to its larger peer HDFC, which has been able to maintain its loan growth between 19 – 22% in the same period.

The moderation can be attributed largely to falling corporate disbursements in this period. Notably, corporate disbursements fell 62% sequentially to Rs 121 crore and 71% when compared to the September 2011 quarter. In September 2012 quarter, the individual loan growth also came off to 21% from 29% as witnessed in the June 2012 quarter. Consequently, the net interest income came (NII) in lower than analysts’ expectations. For this fiscal though, analysts expect loan growth to remain at 23%.

Margins

As against an expectation of improvement, the net interest margins (NIMs) contracted by 8 basis points (bps) sequentially to 2.1%. However, easing cost of funds provided some cushion to margins in the quarter. LIC Housing Finance, Director and Chief Executive, V K Sharma, said “It is encouraging to note that there is a 10% increase in number of customers which is a very good sign. The other good indication is that the incremental costs of funds are showing some trends of easing.”

Notably, company had indicated that its loans worth Rs 2,500 crore (under the Fix-O-Floaty product) will be re-priced in the upward direction in the September 2012 quarter, pushing margins up. But, there is no clarity on the same in the results. Notes Varun Varma, Banking analyst at Angel Broking, "LIC housing finance results were below expectations. We will need more clarity from management on the amount of loans re-priced in the September quarter. Lower corporate disbursement is another factor that has hit the net interest margins. We will closely watch the margin and corporate disbursement trends in the next two quarters."

Asset quality remained strong for the quarter gone by as gross non-performing assets (NPA) improved to 0.60% versus 0.64% y-o-y. Though the net NPAs inched up to 0.28% versus 0.12% y-o-y, the sequential fall of 84% in provisioning to Rs 694 crore is an indication of improving asset quality.