LICHousingFinance

October20,2014
PriteshBumb
priteshbumb@plindia.com
+912266322232

Rating
Price
TargetPrice
ImpliedUpside
Sensex
Nifty

Accumulate
Rs324
Rs360
11.1%
26,430
7,879

(PricesasonOctober20,2014)
Tradingdata
MarketCap.(Rsbn)
Shareso/s(m)
3MAvg.Dailyvalue(Rsm)
Majorshareholders
Promoters
Foreign
DomesticInst.
Public&Other
StockPerformance
(%)
1M
6M
Absolute
1.3
20.4
Relative
3.7
3.6
HowwedifferfromConsensus
EPS(Rs)
PL
Cons.
2015
29.5
29.5
2016
36.7
35.2

163.4
505.0
1769.2
40.31%
38.39%
7.26%
14.04%
12M
58.1
31.5
%Diff.
0.1
4.1

PricePerformance(RIC:LICH.BO,BB:LICHFIN)
(Rs)
400
350
300
250
200
150
100
50
0

LICHFs Q2FY15 topline performance was inline with expectations with some
improvement in spreads and better loan growth. PAT growth of 10% YoY was a
slight dissapointment on higher opex (silver jubilee ad spends) and lower other
income(lowerincomefromliquidMFs).Improvementinfundingenvironmentwill
help maintain spreads but any translation of better spreads in financials will
depend on loan growth sustenance going ahead. We maintain Accumulate with
increasedTPofRs360(onrollovertoSep16book)
Spreads see some improvement: In Q2FY15, seasonally adjusted spreads
improved by 6bps QoQ on better loan growth especially LAP (~1015% QoQ
disbursement growth) which led to 13bps improvement in blended yields.
Fundingenvironmenthasbeenbenigninfastfewmonthswithwholesalerates
softeningwhichwillbepositiveforLICHFspreads(alreadyborrowingat9.1%v/s
9.6% in Q1FY15) and robust sanctions done in Q2FY15 on builder book could
add to spread improvement. But most of the improvement in spreads will be
reflectedonfinancialsifloangrowthdeliverycontinues.Managementbelieves
marginscouldmoveto2.75%inFY16asaboutRs280290bnoffixedloansfrom
variousproductscouldberepricedupwardsby6575bps.
LoangrowthDisbursements&Sanctionsshowinggoodtrends:Loangrowth
has moderated to ~17% v/s +20% in Q1FY14, but is now showing pick up on
healthy sanctions in both individual & project (builder book). Though
disbursementsinprojectbookweredownby43%YoY,thesanctionswereupby
100% in Q2FY15, which may help disbursement growth in H2FY15. On the
individualportfolio,disbursementgrowthof24%YoYwassupportedbyhealthy
disbursementinLAPofRs4.44bnv/s3.80bninQ1FY15(butLAPis4%ofbook).
Improvementinassetquality;valuationstomoveupifgrowthsustains:Asset
quality improved on recovering large a/c through auction with interest of
Rs1.32bn from builder book which had become an NPA in Q3FY14. LICHF
expects one more a/c of same nature to be recovered in Q4FY15/Q1FY16.
Incremental funding rates look benign which will augur well if loan growth is
sustainedupwardsandwillhelpvaluationsmovetowards1.8xfromcurrent1.6x
Sept 16 book. But even assuming flat margins in FY15, we expect LICHF to
deliver~18.5%ROEswhichkeepsourpositiveviewonthestock.
KeyFinancials(Y/eMarch)

2014
2015E
2016E

2013
Netinterestincome(Rsm)
Growth(%)
Noninterestincome(Rsm)
OperatingProfit(Rsm)
PAT(Rsm)
EPS(Rs)
Growth(%)
NetDPS(Rs)

15,493
10.4
1,850
14,524
10,232
20.3
11.9
3.8

19,229
24.1
2,374
18,470
13,172
26.1
28.7
4.5

23,150
20.4
2,518
21,775
14,895
29.5
13.1
5.3

28,368
22.5
3,208
26,790
18,526
36.7
24.4
6.6

Profitability&valuation

2013

2014

2015E

2016E

Spreads/Margins(%)
RoAE(%)
RoAA(%)
P/E(x)
P/BV(x)
P/ABV(x)
Netdividendyield(%)

2.3
16.8
1.5
16.0
2.5
2.6
1.2

2.3
18.8
1.6
12.4
2.2
2.3
1.4

2.4
18.3
1.5
11.0
1.9
2.0
1.6

2.5
19.6
1.6
8.8
1.6
1.7
2.0

Oct14

Aug14

Jun14

Apr14

Feb14

Dec13

Oct13

Source:Bloomberg

Source:CompanyData;PLResearch

PrabhudasLilladherPvt.Ltd.and/oritsassociates(the'Firm')doesand/orseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresultinvestorsshouldbeawarethat
theFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthereport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaserefertoimportantdisclosuresanddisclaimersattheendofthereport

Q2FY15ResultUpdate

Sustenanceingrowthmomentumimportantnow!

LICHousingFinance

Exhibit1: Q2FY15Bettergrowthtrends&assetquality
LICHF(Rsm)

Q2FY14

Q1FY15

Q2FY15

YoY

QoQ

OperatingIncome

22,237

24,826

25,961

16.7%

4.6%

InterestExpenses

17,703

19,764

20,643

16.6%

4.4%

4,534

5,062

5,318

17.3%

5.1%

OtherIncome

787

610

626

20.4%

2.6%

ProcessingFees

239

265

315

31.5%

18.7%

5,321

5,672

5,944

11.7%

4.8%

NetInterestIncome

TotalIncome
OperatingExpenses
OperatingProfits
Provisions

744

699

965

29.7%

38.0%

4,577

4,973

4,980

8.8%

0.1%

341

92

(190)

155.9%

307.8%

PBT

4,237

4,880

5,168

22.0%

5.9%

Taxation

1,136

1,659

1,756

54.6%

5.9%

PAT

3,101

3,221

3,412

10.0%

5.9%

Borrowings

751,790

828,890

882,250

17.4%

6.4%

Loans

832,160

936,095

975,282

17.2%

4.2%

Individualloanbook

807,040

910,584

951,295

17.9%

4.5%

25,120

25,510

23,987

4.5%

6.0%

3.0%

2.7%

2.5%

0.6%

0.3%

10.89%

10.74%

10.87%

0.02%

0.13%

BalanceSheet

Builderloanbook
Shareofbuilderloans

Ratios
AnnualizedYieldonLoans
CostofFunds

9.67%

9.59%

9.65%

0.02%

0.06%

Spreads

1.22%

1.15%

1.21%

0.00%

0.06%

Margins

2.18%

2.16%

2.19%

0.01%

0.04%

14.0%

12.3%

16.2%

2.3%

3.9%

CosttoIncomeRatio
ProvisionstoOperatingProfits
TaxRate

7.4%

1.8%

3.8%

11.3%

5.7%

26.8%

34.0%

34.0%

7.2%

0.0%

6,111

7,534

6,110

0.0%

18.9%

AssetQuality
GrossNPA
NetNPAs

3,644

4,570

3,167

13.1%

30.7%

Provisionscoverage%

39.7%

38.8%

47.6%

7.9%

8.9%

IndividualbookGrossNPAs(%)

0.46%

0.40%

0.37%

0.09%

0.03%

Source:CompanyData,PLResearch

October20,2014

LICHousingFinance

Exhibit2: Marginsinchupby4bpsQoQonbetterloangrowth
3.50%
3.00%
2.50%
2.00%
1.50%

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

Q4FY11

Q3FY11

Q2FY11

1.00%

Source:CompanyData,PLResearch

91,000
81,000
71,000
61,000
51,000
41,000
31,000
21,000
11,000
1,000

Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15

(Rsm)

18,500
16,500
14,500
12,500
10,500
8,500
6,500
4,500
2,500
500

Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15

(Rsmn

Exhibit3: Good pick up in individual loan disbursement; LAP Exhibit4: Sanctions may help on better disbursements in developer
disbursementgrowthat15%
loanportfolio

Source:CompanyData,PLResearch

Source:CompanyData,PLResearch
Exhibit5: Builderbookportfolioseessomedip,butsanctionstrendslookpromising
LoanBook

100.0%

BuilderPortfolio

Mortgage

80.0%
60.0%
40.0%
20.0%
0.0%
20.0%

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

Q4FY11

Q3FY11

Q2FY11

40.0%

Source:CompanyData,PLResearch

October20,2014

LICHousingFinance

Exhibit6: Assetqualityhasbeenvolatileforlastfewquartersbutimprovementwasseen
inQ2FY15asonelargedeveloperloanwasrecovered
GrossNPA

0.90

NetNPA

0.80
0.70

(%)

0.60
0.50
0.40
0.30
0.20
0.10

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

Q4FY11

Q3FY11

Q2FY11

Source:CompanyData,PLResearch
Exhibit7: ROEsof+20%inFY17couldbeonmarginimprovement&betterloangrowth
ROEDecomposition(onAUM)

FY10

FY11

FY12 FY13 FY14 FY15E FY16E FY17E

NetInterestIncome/Assets

2.6%

3.0%

2.3% 2.1% 2.2% 2.2%

2.3%

2.4%

Fees/Assets

0.5%

0.8%

0.4% 0.3% 0.3% 0.2%

0.3%

0.3%

Investmentprofits/Assets

0.0%

0.0%

0.0% 0.0% 0.0% 0.0%

0.0%

0.0%

Netrevenues/Assets

3.1%

3.8%

2.7% 2.4% 2.4% 2.5%

2.6%

2.6%

OperatingExpense/Assets

0.6%

0.5%

0.4% 0.4% 0.4% 0.4%

0.4%

0.4%

0.1%

0.6%

0.3% 0.1% 0.0% 0.0%

0.1%

0.1%

Taxes/Assets

0.7%

0.7%

0.5% 0.5% 0.6% 0.6%

0.6%

0.6%

TotalCosts/Assets

1.2%

1.7%

1.2% 1.0% 1.0% 1.0%

1.1%

1.1%

ROA

1.9%

2.1%

1.5% 1.4% 1.5% 1.4%

1.5%

1.5%

9.7%

8.9%

9.5% 8.9% 8.5% 8.4%

8.3%

8.1%

Provisions/Assets

Equity/AUM
ROE

23.6% 25.8% 18.4% 16.6% 18.6% 18.3% 19.6% 20.5%

Source:CompanyData,Bloomberg,PLResearch
Exhibit8: LICHFP/Bv/s3yrRateValuationscouldimproveonbetterspreads
FIMMDA3Yr

14.00

LICHFP/B

3.50

13.00

3.00

12.00
2.50

11.00

2.00

10.00
9.00

1.50

8.00
1.00

7.00
6.00

Oct14

Apr14

Oct13

Apr13

Oct12

Apr12

Oct11

Apr11

Oct10

Apr10

Oct09

Apr09

Oct08

Apr08

Oct07

Apr07

Oct06

Apr06

Oct05

0.50

Source:CompanyData,Bloomberg,PLResearch

October20,2014

LICHousingFinance

Exhibit9: ValuationsforLICHFstillbelowitsmeanlevels

3.00
2.50
2.00
1.50

Jun09
Sep09
Dec09
Mar10
Jun10
Sep10
Dec10
Mar11
Jun11
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
Dec13
Mar14
Jun14
Sep14

1.00

Source:CompanyData,PLResearch
Exhibit10: LICHFPTofRs360/sharebasedon1.7xSep16book
Riskfreerate

8.0%

EquityRiskPremium

6.0%

Beta

1.3

CostofEquity

15.8%

Terminalgrowth

5.0%

NormalisedROE

19.4%

Stage2growth

18.5%

Sep15PT

360

ImpliedSep16P/B

1.73

ImpliedSep16P/E

8.8

Source:CompanyData,PLResearch

October20,2014

IncomeStatement(Rsm)
Y/eMarch
Int.Inc./Opt.Inc.
InterestExpenses
Netinterestincome
Growth(%)
Noninterestincome
Growth(%)
Netoperatingincome
Expenditure
Employees
Otherexpenses
Depreciation
Totalexpenditure
PPP
Growth(%)
Provision
Otherincome
ExchangeGain/(Loss)
Profitbeforetax
Tax
Effectivetaxrate(%)
PAT
Growth(%)

2013

2014

74,622
59,246
15,493
10.4
1,850
(16.3)
17,343

904
1,839
75
2,818
14,524
4.7
789

13,736
3,504
25.5
10,232
11.9

90,804
71,744
19,229
24.1
2,374
28.3
21,602

1,038
2,018
76
3,133
18,470
27.2
215

18,255
5,083
27.8
13,172
28.7

2015E

2016E

106,621
83,471
23,150
20.4
2,518
6.1
25,668

125,537
97,169
28,368
22.5
3,208
27.4
31,576

1,194
2,615
84
3,893
21,775
17.9
497

21,278
6,383
30.0
14,895
13.1

1,409
3,285
92
4,786
26,790
23.0
1,412

25,378
6,852
27.0
18,526
24.4

BalanceSheet(Rsm)
Y/eMarch

2013

Sourcesoffunds

Equity
1,010
Reserves&Surplus
63,803
Networth
64,813
Growth(%)
14.1
Loanfunds
687,641
Growth(%)

Others

MinorityInterest

DeferredTaxLiability

Total
752,454
Applicationoffunds

Netfixedassets
624
Advances
778,127
Growth(%)
23.4
Netcurrentassets
(37,218)
Investments
10,921
Growth(%)
(20.6)
OtherAssets

Total
752,454
Source:CompanyData,PLResearch.

2014

2015E

1,010
1,010
74,318
86,076
75,328
87,086
16.2
15.6
820,356
965,120
19.3
17.6

895,684 1,052,205

756
687
913,409 1,073,927
17.4
17.6
(43,923)
(48,950)
25,442
26,541
133.0
4.3

895,684 1,052,205

2016E
1,010
100,700
101,710
16.8
1,158,792
20.1

1,260,503
791
1,279,147
19.1
(54,199)
34,764
31.0

1,260,503

LICHousingFinance

QuarterlyFinancials(Rsm)
Y/eMarch
Q3FY14

Q4FY14

Q1FY15

Q2FY15

23,120

18,543
4,577
23.8
644
5,221
23.3
731
4,490
26.1
(75)

4,564
1,297

28.4
3,268
36.2

24,074

18,743
5,331
15.7
705
6,037
19.0
1,043
4,994
21.0
(223)

5,216
1,516

29.1
3,701
17.1

24,826

19,764
5,062
11.3
610
5,672
12.9
699
4,973
12.7
92

4,882
1,659

34.0
3,223
3.8

25,961

20,643
5,318
17.3
626
5,944
11.7
965
4,980
8.8
(190)

5,170
1,756

34.0
3,414
10.1

2013

2014

2015E

2016E

324
505
163,387
21.7
20.3
128.3
122.9
16.0
2.5
2.6
3.8
1.2

324
505
163,387
18.2
26.1
149.2
142.2
12.4
2.2
2.3
4.5
1.4

324
505
163,387
15.5
29.5
172.5
163.6
11.0
1.9
2.0
5.3
1.6

324
505
163,387
13.0
36.7
201.4
190.9
8.8
1.6
1.7
6.6
2.0

AssetQuality
Y/eMarch

2013

2014

2015E

2016E

GrossNPAs(Rsm)
NetNPAs(Rsm)
GrossNPAstoGrossAdv.(%)
NetNPAstoNetAdv.(%)
NPACoverage(%)

4,712
2,759
0.6
0.4
41.4

6,090
3,536
0.7
0.4
41.9

8,943
4,472
0.8
0.4
50.0

10,001
5,294
0.8
0.4
47.1

Profitability(%)
Y/eMarch

2013

2014

2015E

2016E

NIM
2.3
RoAA
1.5
RoAE
16.8
Source:CompanyData,PLResearch.

2.3
1.6
18.8

2.4
1.5
18.3

2.5
1.6
19.6

Int.Inc./OperatingInc.
Incomefromsecuritization
InterestExpenses
NetInterestIncome
Growth
Noninterestincome
Netoperatingincome
Growth
Operatingexpenditure
PPP
Growth
Provision
ExchangeGain/(Loss)
Profitbeforetax
Tax
Prov.fordeferredtaxliability
Effectivetaxrate(%)
PAT
Growth

KeyRatios
Y/eMarch
CMP(Rs)
Eq.Shrs.O/s.(m)
MarketCap(Rsm)
MarketCaptoAUM(%)
EPS(Rs)
BookValue(Rs)
AdjustedBookValue(Rs)
P/E(x)
P/BV(x)
P/ABV(x)
DPS(Rs)
DividendYield(%)

October20,2014

LICHousingFinance

PrabhudasLilladherPvt.Ltd.
3rdFloor,SadhanaHouse,570,P.B.Marg,Worli,Mumbai400018,India
Tel:(9122)66322222Fax:(9122)66322209
RatingDistributionofResearchCoverage

60%
%ofTotalCoverage

50.0%
50%
40%

31.7%

30%
18.3%

20%
10%

0.0%
0%
BUY

Accumulate

Reduce

Sell

PLsRecommendationNomenclature

BUY

Over15%OutperformancetoSensexover12months

Accumulate

: OutperformancetoSensexover12months

Reduce

UnderperformancetoSensexover12months

Sell

: Over15%underperformancetoSensexover12months

TradingBuy

Over10%absoluteupsidein1month

TradingSell

: Over10%absolutedeclinein1month

NotRated(NR)

Nospecificcallonthestock

UnderReview(UR)

: Ratinglikelytochangeshortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
informationandisnotforcirculation.ThisdocumentisnottobereportedorcopiedormadeavailabletootherswithoutpriorpermissionofPL.Itshouldnotbe
consideredortakenasanoffertosellorasolicitationtobuyorsellanysecurity.
Theinformationcontainedinthisreporthasbeenobtainedfromsourcesthatareconsideredtobereliable.However,PLhasnotindependentlyverifiedtheaccuracy
orcompletenessofthesame.NeitherPLnoranyofitsaffiliates,itsdirectorsoritsemployeesacceptanyresponsibilityofwhatsoevernaturefortheinformation,
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Recipientsofthisreportshouldbeawarethatpastperformanceisnotnecessarilyaguidetofutureperformanceandvalueofinvestmentscangodownaswell.The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
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October20,2014