Maintain ‘buy’ on LIC Housing Finance (LIC HF) with a price target of R600 (earlier R575 per share). We like LIC HF due to strong earnings growth visibility and low concerns on asset quality. We believe that margin improvement and strong earnings growth would drive ~400 bps ROE improvement over FY15-17e to 22% and re-rating from current levels. Our target is implies 2.8x FY17e P/BV and 14x FY17e P/E.
LIC HF’s net interest income (NII) growth of 35% y-o-y was higher than UBS and consensus estimates (UBSe – 28% y-o-y) for the second consecutive quarter supported by 15 bps q-o-q improvement in margins (to 2.56%).
Loan growth was lower than estimates at 17% y-o-y in Q2FY16 (vs 17.9% and 18.5% in Q1FY16 and Q1FY15) as individual home loans growth moderated to 14-15%. LAP portfolio continues to register strong growth of 20% quarter-onquarter from low base and now constitutes 5.6% of total loan book.
Overall disbursement growth improved from 10% in Q1FY16 to 17% in Q2FY16 supported by LAP and developer segment. Asset quality was stable with GNPLs at 0.6%. Retail GNPLs are among the lowest in industry at 0.39%. Tax rate was marginally higher at 36% and is likely to stay at ~35% for FY16e.
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