LIC HF has no capital constraints in growing its loan book

The strong capital adequacy of 16.5% ensures that LIC HF has no capital constraints in growing its loan book. The stock valuation at 1.9x FY18 P/ABV largely factors the strong profitability of the franchise.

LIC Housing Finance is likely to deliver healthy earnings CAGR of 16% over FY16-18 led by stable NIM and credit costs, says an IIFL Research report. Focus on profitability will translate to healthy RoAs and RoEs of 1.5% and 21% over the aforesaid period. The strong capital adequacy of 16.5% ensures that LIC HF has no capital constraints in growing its loan book. The stock valuation at 1.9x FY18 P/ABV largely factors the strong profitability of the franchise. IIFL has maintained Accumulate Rating on LIC HF with a 12-month target price of Rs. 520.
 
Following are key highlights of the report:

• Strong NII growth backed by NIM expansion; PAT growth was dragged by higher expenses
• Overall loan growth moderates to 15% yoy due to material slowdown in individual home loan portfolio
• NIM was stable sequentially but higher materially yoy; Competition will pressurize portfolio yield despite persistent mix shift towards higher yielding products. This will lead to NIMs being stable over the next two years.
• Asset quality performance was stable with Gross NPA at Rs. 681cr (0.58%) v/s Rs. 683cr (0.63%) qoq and Net NPA at Rs. 376cr (0.32%) v/s Rs. 365cr (0.32%) qoq.
• Valuation largely factors strong profitability of the franchise