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LICHF: Showing performance - Views on News from Equitymaster
 
 
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  • Nov 11, 2004

    LICHF: Showing performance

    Introduction to results
    LIC Housing Finance Limited (LICHF) had announced its September quarter results sometime back. The company has reported a healthy financial performance in the September quarter, reporting topline and bottomline growth of 5% and 27% respectively, on a YoY basis. While the topline growth has been tempered compared to its earlier quarters, the bottomline growth has been encouraging. Similar results have been reported for 1HFY05. Strong improvement in operating margins, due to control over interest expenses as well as operating costs, has been the main highlight of the company's performance in 2QFY05. The improvement in the bottomline is despite a significant fall in other income.

    (Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
    Income from Operations 2,380 2,492 4.7% 4,608 4,922 6.8%
    Other Income 108 77 -28.4% 211 131 -38.0%
    Interest Expenses 1,624 1,644 1.2% 3,173 3,247 2.3%
    Net interest income 756 848 12.2% 1,435 1,675 16.7%
    Other Expenses 392 355 -9.4% 740 680 -8.2%
    Operating Profit 364 493 35.4% 695 996 43.3%
    Operating Profit Margin (%) 15.3% 19.8%   15.1% 20.2%  
    Provisions and Contingencies 4 8 87.8% 9 15 63.4%
    Profit before Tax 468 562 20.2% 897 1,111 24.0%
    Tax 108 106 -2.2% 197 236 19.6%
    Profit after Tax/(Loss) 360 457 27.0% 699 876 25.2%
    Net Profit Margin (%) 15.1% 18.3%   15.2% 17.8%  
    No. of Shares (m) 75.0 85.0   75.0 85.0  
    Diluted Earnings per share (Rs) 19.2 21.5   18.7 20.6  
    P/E Ratio (x)         6.9  

    Second largest housing finance company
    LIC Housing Finance (LICHF) is the second largest player in the housing finance market, with a share of over 8% in the incremental loans disbursed. Life Insurance Corporation (LIC) with a 38% stake is the promoter of this company. Its reach as well as distribution alliance with its parent has helped LICHF to grow its housing loans at a compounded rate of close to 19% over the past five years. The company is one of the most aggressive players in the housing finance segment and has managed to keep its operating costs low.

    What has driven the performance in 2QFY05?
    Sales:  During 2QFY05, while the company has managed to post a over 22% YoY (28% YoY in FY04) growth in its outstanding advances, growth in disbursements however stands lower at nearly 15% YoY (37% YoY in FY04). This indicates that the company seems to be witnessing a slowdown in its lending operations and this may be due to higher competition from banks. The pressure on yields has taken a toll on the topline growth of the company and considering the strong competition in the sector, we may see further pressure on topline growth.

    Operating margins:  Like in 1QFY05, the company was able to control interest expenses as well as reduce operating expenses, thus improving operating margins in 2QFY05 as well. The company has not provided the details of how its cost of capital has moved in the September quarter. The fall in operating expenses is encouraging considering that the company saw a fall in operating margins in FY04 due to higher operating expenses.

    Net Profits:  Provisioning has also risen in 2QFY05. However, the company continues not to divulge its net NPA figures. LICHF's net NPA to advances ratio stood at over 2.3% in FY04. Compared to rivals like HDFC, the NPA levels of the company are significantly higher. LICHF has been significantly aided by deferred tax assets in the June quarter and this has continued even in the September quarter. The deferred tax asset was also seen in the FY04 results of the company. The growth in bottomline, as apparent from the results, is mainly driven by improvement in operational efficiencies as well as growth in topline.

    What to expect?
    At Rs 143, the stock is trading at a P/E multiple of 7 times its annualised 1HFY05 earnings. After a disappointing performance in FY04, LICHF's results in the first half of the current financial year are encouraging. While the company has managed to improve its operational performance, the slowdown in growth of disbursements is a cause of concern. With fears of rising interest rates gaining ground, the company may lose market share to more competitive banks. NPAs continues to remain a cause of concern. While valuations look cheap at the current market price, investors also need to realise that there needs to be a consistency in LICHF's performance before one can be confident about its prospects going forward. Thus, there is still a need to exercise caution at this stage.

     

     

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