LIC Housing Finance Limited (LICHF), the second largest housing finance company in the country, had reported a rather lackluster performance for 1QFY04. The company achieved a topline growth of 2%, while it reported an almost flat 1% rise in its bottomline for the June quarter. Operating margins have, however, fallen significantly in this period.
Income from Operations
Net interest income
Operating Profit Margin (%)
Provisions and Contingencies
Profit before Tax
Profit after Tax/(Loss)
Net Profit Margin (%)
No. of Shares (m)
Diluted Earnings per share (Rs)
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LICHF's performance in the June quarter is in sharp contrast to its performance in FY03. While the periods are not comparable, growth in topline and bottomline have been rather lackluster. In FY03, the company saw a 15% rise in topline while the bottomline grew by an even better 22%. The main reason for the strong performance in FY03 was the strong 63% growth in the company's advances. However in the June quarter, judging by the lackluster growth in topline, we believe that the company may have faced pressure on both advances (growth) as well as yields on advances. Due to the rapid fall in housing loan rates, we expect LICHF's yields on housing loan to fall at a faster rate going forward.
While the company's net interest income improved on account of falling interest expenses, it has failed to translate into higher net profits. This is because the company reported a strong growth (135%) in other expenses. Operating margins consequently have fallen by nearly 400 basis points. Provisioning too has shown a dip. This is despite the fact that the NPA figures for the company are on the higher side. LICHF's net NPA to advances ratio stands at over 3% compared to nil for rival HDFC.
Strong growth in other income and lower provisioning helped the company post a marginal growth in bottomline. If one were to remove the effect of other income, the company would have posted a significant decline in net profits for the June quarter.
At Rs 143, the stock is trading at a P/E ratio of 8x its annualised 1QFY04E earnings. The June quarter results indicated pressure on the company's business both in terms of volumes as well as yields. LICHF's high level of NPAs are also a cause of concern, regarding which the company does not seem to have done much even in FY03. The growth in the company's assets seems to be coming at a cost, i.e. higher NPAs. Going forward, one needs to carefully watch the company's performance as far as advances growth is concerned as well as its strategies to reduce NPAs.
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