LIC Housing Finance sees improving outlook

Healthy growth of net interest income, net interest margin, loan book in quarter

LIC Housing Finance’s March 2016 quarter results were largely in line with Street expectations. Net interest income (NII) at Rs 821 crore grew 26 per cent year-on-year (y-o-y), while net profit at Rs 448 crore was up 18.5 per cent y-o-y. Net interest margin (NIM) at 2.71 per cent registered a 24-basis point y-o-y growth - the best the company has posted in the past 19 quarters.

The firm’s cost of funds, which has reduced from 9.48 per cent a year ago to 9.14 per cent in the fourth quarter of FY16 has also aided NIM expansion. The dependence on bank funding (32 per cent of total borrowing in FY12) has significantly fallen to 12.7 per cent in FY16, which has, in turn, helped keep a check on cost of funds.

The company’s loan book at Rs 1,25,173 crore grew 16 per cent, led by a healthy growth of individual loan portfolios. Loans to individuals, which account for 97 per cent of LIC Housing’s total loans, stood at Rs 1,21,731 crore in the quarter under review, up 15 per cent y-o-y. Slowing loan growth has been one of the key investor concerns for LIC Housing with loan growth in recent quarters having fallen to multi-year lows due to slowing disbursement and higher prepayment rates on the existing book.

However, an improving NIM and loan book growth could translate into better prospects for the company. Nitin Kumar of Prabhudas Lilladher says although NII was a tad below his expectation, the overall business of LIC Housing is holding up well. “NIMs and spread (2.1 per cent) indicates positive outlook for FY17.”

But then, provisioning for the quarter stood at Rs 37.6 crore (Rs 10.3 crore in the fourth quarter of FY15). However, there is no alarm on the asset quality front as gross non-performing assets (gross NPA) ratio at 0.45 per cent has been in line with the year-ago level of 0.46 per cent. “There is a little increase in provisioning, which is the only blip in Q4’FY16 results,” says Siddharth Purohit of Angel Broking.

With 84 per cent of LIC Housing’s loan book accruing from the salaried class and the company maintaining a comfortable loan-to-value ratio (quantum of loan extended against the value of property) of 46.4 per cent (versus 50.9 per cent in FY15), analysts point out the asset quality would be robust. They also hint at a possible upward revision in their estimates after the investor call this week.