Provisions for slippages will affect short term outlook – LIC Housing Finance
Update on Indian Equity Market:
On Thursday, markets ended lower with Nifty losing 76 points to close at 15,691. ULTRACEMCO (+1.7%), TCS (+1.6%), and INFY (+1.4%) were the top gainers on the index while ADANIPORTS (-9.0%), INDUSINDBK (-3.0%), and HINDALCO (-3.0%) were the top losers for the day. Among the sectoral indices, METAL (-2.3%), REALTY (-1.7%), and PSU BANK (-1.4%) were the top losers, while IT (+0.6%) and FMCG (+0.1%) were the only gainers.
Excerpts of an interview with Mr Y Vishwanath Gawd, MD and CEO of LIC Housing Finance on CNBCTV18 dated 16th June 2021 :
- Retail stress was the leading cause of slippages in non-performing assets (NPA). Substantial new provisions were needed to be made due to the Supreme Court Order last year, which compelled the company to make provisions in 4QFY21.
- Project Finance and Developer Loans form just 7% of the loan book, so not much issue of NPAs there as the company has made adequate provisions for the loan book.
- The One-time restructuring facility was provided last year by the government. Around 1.5-2% of the portfolio was restructured using the same facility, this year the company expects a similar restructuring process to be followed, the only concern will be an expectation of a longer repayment structure.
- The disbursements grew over 97% YoY however the same was not reflected in the order book growth due to faster and larger repayments, consumers shifting their loans to other companies for better terms and restructuring offers during the pandemic.
- Substantial reduction in the cost of funds has seen the margins improve to around 2.3-2.4% but the company expects margins to stabilise at these levels due to bottoming out of lending rates.
- As far as the capital infusion is concerned, the company promoter LIC is investing through preferential allotment of 45.4 mn of equity shares which will further shore up leverage and provided much-needed cash impetus.
- The focus in FY22 will be to increase market penetration and further improve all the ratios to deliver better value and post incremental growth in the loan book portfolio.
Asset Multiplier Comments:
- LIC Housing Finance has seen its NPA Provisions bottoming out due to the Supreme Court order. A substantial loan book growth, and improving margins will be the cause of higher growth rates going ahead.
- As the stress from the Covid-19 pandemic subsides, the affordable housing industry will gather pace which promises better days for the company.
Consensus Estimates (Source: market screener website):
- The closing price of LIC Housing Finance was ₹480/- as of 17-June-2021. It traded at 1.03x/ 0.92x the BVPS estimate of ₹ 462/ ₹ 518 for FY22E/23E respectively.
- The consensus price target is ₹ 507/- which trades at 0.95x the BVPS estimate for FY23E of ₹ 518/-
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