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LICHF: Margins on an upswing

Aug 16, 2002

LIC Housing Finance (LICHF) continued to record stellar performance for the quarter ended June 2002. The company's profits grew by 32% on the back of a sharp rise in operating margins and lower operating costs. Its interest income also witnessed a healthy growth of 12%

(Rs m)1QFY021QFY03ChangeFY01FY02Change
Income from operations 1,955 2,18912.0% 7,446 8,57815.2%
Other Income 2 2 -33.3% 9 38 308.6%
Interest expense 1,481 1,5575.1% 5,509 6,27814.0%
Net interest income 473 63233.5% 1,937 2,30118.7%
Other expenses 90 12133.5% 379 50633.8%
Operating Profit 383 511 33.6% 1,559 1,794 15.1%
Operating Profit Margin (%)19.6%23.3% 20.9%20.9% 
Provisions and contingencies 35 70 100.0% 109 21092.0%
Profit before Tax 350 44326.4% 1,459 1,62211.2%
Tax 95 10712.4% 353 3560.7%
Profit after Tax/(Loss) 255 33631.7% 1,106 1,26714.5%
Net profit margin (%)13.1%15.3% 14.9%14.8% 
No. of Shares (m) 75.0 75.0   75.0 75.0  
Diluted Earnings per share*13.617.9 14.716.9 
P/E Ratio 4.1  4.3 

Fueled by buoyant housing demand and lower interest rates, LICHF managed double digits growth in interest income from housing loans. Not only this, the company also successfully reduced its interest cost by increasing the proportion of non-convertible debentures (NCD) and borrowings from banks at sub PLR rates. These sources of funds accounts for around 71% of the company's incremental borrowings and consequently, the proportion of loans from LIC has come down to 17% (on an incremental basis). In FY02, 57% of total borrowings of LICHF were from its promoter LIC. Lower cost of funds in the June quarter supported the company's sharp improvement in operation margins by about 380 basis points.

LICHF's cost to income ratio at 19.1% remained constant compared to the corresponding quarter in the previous year. The company has one of the lowest cost to income ratio, as it derives nearly 60% of its business from agents employed by LIC. Currently, it has over 3,000 agents spread across the country for which LICHF is not required to incur salary cost.

During the quarter, the company doubled its provisions for non-performing assets to Rs 70 m, as it had comparatively low provision coverage ratio of 20% as on March 2002. Its net NPAs to advances ratio stood at 2.9% in FY02. The company's earnings growth in the coming years is likely to get affected, as it would have to increase its provision amount for NPAs to increase the coverage ratio, to show cleaner picture of its financials.

At the current market price of Rs 74, LIC Housing Finance is trading at a P/E of 4x 1QFY03 annualised earnings and adjusted price to book value ratio of 1x. The company has targeted strong growth rates (18-19% rise expected in loan disbursements) in business for FY03, which would be achievable if it becomes proactive to market changes (with customized housing finance products and improve service quality, in line with its peers).

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