20th January 2011.

INR LIC housing Finance Ltd

Key Data LIC Housing Finance Ltd (LICHF) has declared results for 3QFY11.Driven by
CMP (`) 173
strong growth in disbursements at 28% the net interest income has registered a
Target Price (`) 205
55% growth on a YoY basis. Asset quality performance appears on track as
Bloomberg Code LICHF IN
Reuters Code LICH.BO indicated by low NPAs.
BSE Code 500253
KEY HIGHLIGHTS FOR 3Q FY11:
NSE Code LICHSGFIN
Face Value (`) 2 • LICHF has recorded robust business growth. Sanctions grew by 28% YoY to
Market Cap (` Bn) 85
`58 billion while disbursements were up by 28% YoY to `46 billion in
52 Week High (`) 299
52 Week Low (`) 141 3QFY11.
Avg. Daily Volume (6m) 2163983
• Loan book registered a 36% YoY growth to `464 billion. Loans to builders
F&O
Market Lot 1250 constitute 10.5% (worth `48.6 billion) of LICHF’s total loan portfolio. Gross
Turnover (` Mn) 3970
NPAs on the builders loan portfolio was 0.08%.

Shareholding % • Net interest income has registered a 55% YoY increase from `2.3 billion as on
Promoters 36.5
3QFY10 to `3.5 billion as on 3QFY11. The net profits were up by 39% YoY
Mutual Funds / Bank/ FI 0.2
Insurance Companies 3.5 from `1.5 billion as on 3QFY10 to `2.1 billion as on 3QFY11. During the
Foreign Institutional Investors 41.8
3QFY11, LICHF reported a sequential improvement in margins of 3.14%
Others 17.9
Total 100.0 against 2.93% reported in 2QFY11 versus 2.76% as on 3QFY10.

• Gross NPAs stood at 0.67% in 3QFY11 as against 1.44% as on 3QFY10. Net

NPAs were 0.18% as against 0.77% for same period.

Valuation and recommendation

Driven by 26% growth in its loan book, we expect LICHF to register a CAGR of
33% in its net interest income during FY10-12. Going forward, we expect the loan
book to grow at a 26% CAGR from `380 billion as on FY10 to `608 billion as on
FY12. Although the rate hikes and the new schemes (‘Advantage 5’) launched by
LICHF are expected put pressure on the incremental spreads. However we expect
LICHF to be able to pass on the same to its customers, which in turn will lead to
stable margins.

We expect LICHF to benefit from strong parentage, access to low cost funds,
improved asset quality and buoyancy in demand for housing loans. We continue to
be positive on the company and recommend, “BUY” for a target of `205 (2.0x
P/ABV of `102.5 of FY12).

Analyst
Deepti Chauhan
research@acm.co.in
Tel: +91-22 2858 3408

LIC Housing Finance Ltd – Result Update ACMIIL 1

 Disbursement growth

LICHF has recorded robust business growth. Sanctions grew by 28% YoY to `58
billion while disbursements were up by 28% YoY to INR46 billion in 3QFY11.
Individual loans were the major growth driver, wherein sanctions and
disbursements grew 90% and 41 % YoY respectively. Further the average ticket
size of individual loans has also increased from `15 lakhs to `16 lakhs as on Dec
2010. As a result, loan book increased 36% to `464 billion. Loans to builders
constitute 10.5% (worth `48.6 billion) of LICHF’s total loan portfolio. Gross NPAs
on the builders loan portfolio was 0.08%. Going forward, we expect the loan book
to grow at a 26% CAGR from `380 billion as on FY10 to `608 billion as on FY12.
We believe that cautious approach for developer loans will continue and expect
proportion of borrower loan to be at 11% of the book.

Borrowing profile

The borrowing profile of LICHF is skewed towards fixed rate liabilities

(debentures). Further 55% of its liabilities are fixed in nature. The rest of the
borrowings are in the form of term loans, deposits etc. With the recent rate hikes,
the average cost of funds has increased from 7.91% as on 2QFY11 to 8.12% as on
3QFY11.However since 45% of its liabilities are on floating rate basis and 65% of
the home loans carry a floating rate, LICHF will be able to pass on the increase in
the cost to its customers.

Net Interest Margins

During the 3QFY11, LICHF reported a sequential improvement in margins of

3.14% against 2.93% reported in 2QFY11 versus 2.76% as on 3QFY10.
Incrementally the spreads are at 1.65%. With increase in cost of funds, LICHF also
increased its prime-lending rate by 50 bps effective Jan 2011. We expect LICHF to
register an improvement in margins from 2.7% as on FY10 to 2.9% as on FY11.

Operational Performance

The net interest income of the company registered a 55% YoY increase from `2.3
billion as on 3QFY10 to `3.5 billion as on 3QFY11. Further during the quarter the
company received extraordinary income of `1.3 billion on account of the stake sale
in LIC mutual fund to Nomura. Also with the revision in provisioning norms by
NHB, LICHF has made full provisioning of `2.35 billion on loans disbursed under
the teaser rates. As a result the profits were up by 39% YoY from `1.5 billion as on
3QFY10 to `2.1 billion as on 3QFY11. In line with the NHB norms we have

LIC Housing Finance Ltd – Result Update ACMIIL 2

 revised our provisioning estimates upwards to account for a 2% provisioning on
teaser rate loans. Further we have also accounted for extraordinary income on
account of the stake sale to Nomura. As a result our net profit estimates have been
revised downwards by 11% for FY11 and 4% for FY12.

Asset quality remains strong

Gross NPAs stood at 0.67% in 3QFY11 as against 1.44% as on 3QFY10. Net NPAs
were 0.18% as against 0.77% for same period. The provision coverage ratio has
increased from 47% in 3QFY10 to 73% in 3QFY11 vis-a-vis 71.8% in 2QFY11.
The asset quality continues to witness significant improvement.

Asset quality 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11

Gross NPA % 1.44% 0.69% 0.92% 0.74% 0.67%

Net NPA % 0.77% 0.12% 0.35% 0.21% 0.18%

Provision Coverage 46.5% 82.5% 61.9% 71.8% 73.2%

Valuation and Recommendation

Driven by 26% growth in its loan book, we expect LICHF to register a CAGR of
33% in its net interest income during FY10-12. We expect LICHF to benefit from
strong parentage, access to low cost funds, improved asset quality and buoyancy in
demand for housing loans. We continue to be positive on the company and
recommend, “BUY” for a target of `205 (2.0x P/ABV of `102.5 of FY12).

Interim Results ` Mn
Particulars 3QFY11 3QFY10 % Chng 9MFY11 9MFY10 % Chng
Interest Income 11,614.8 8,336.1 31,759.6 23,633.4
Interest expended 8,093.1 6,056.6 22,243.7 17,743.7
Net Interest Income 3,521.7 2,279.5 54.5 9,515.9 5,889.7 61.6
Other Income 1,929.4 468.5 3,008.4 1,381.3
Operating Income 5,451.1 2,748.0 12,524.3 7,271.0
Operating Expenses 560.3 424.8 1,457.7 1,298.7
Profit before provisioning 4,890.8 2,323.2 11,066.6 5,972.3
Provision 2,328.1 158.4 2,420.1 -158.5
Profit before taxes 2,562.7 2,164.8 8,646.5 6,130.8
Provisions for taxes 427.8 629.1 2,049.3 1,644.2
Net Profit 2,134.9 1,535.8 39.0 6,597.2 4,486.6 47.0
Equity Share capital 949.3 949.3 949.3 949.3
EPS 4.5 3.2 13.9 9.5
Source: Company

LIC Housing Finance Ltd – Result Update ACMIIL 3

Earnings Summary ` Mn
Particulars FY09 FY10 FY11E FY12E
Interest Income 27476.5 32826.7 44759.4 57548.4
Interest expended 20,166.1 23,957.3 32,292.3 41,823.1
Net Interest Income 7,310.4 8,869.4 12,467.1 15,725.3
Growth % 32.0 21.3 40.6 26.1
Other Income 1557.0 1870.6 2320.7 3047.4
Operating Income 8,867.3 10,740.0 14,787.8 18,772.8
Operating Expenses 1,542.4 1,910.8 2,162.4 2,463.5
Pre Provisioning Profits 7,324.9 8,829.2 12,625.4 16,309.2
Provisions & contingencies 52.5 -283.4 2,353.1 2,171.4
Profit before Taxes and Prior period items 7,272.3 9,112.7 10,272.3 14,137.8
Prior period items -8.1 0.0 0.0 0.0
Profit before Taxes 7,264.2 9,112.7 10,272.3 14,137.8
Provisions for taxes 1,948.0 2,490.9 2,804.3 3,859.6
Net Profits 5,316.2 6,621.8 7,468.0 10,278.2
Growth % 37.3 24.6 12.8 37.6
Extraordinary item 0.0 0.0 1,166.8 0.0
Net Profits 5,316.2 6,621.8 8,634.8 10,278.2
Growth % 37.3 24.6 30.4 19.0
Source: Company, ACMIIL research

Sources and Application of Funds ` Mn

Particulars FY09 FY10 FY11E FY12E
Liabilities
Capital 850.0 950.0 950.0 950.0
Reserves & Surplus 21,491.0 32,926.8 39,727.6 47,949.6
Networth 22,341.0 33,876.7 40,677.6 48,899.6
Borrowings 254,216.6 347,581.6 446,634.9 558,448.9
Total 276,557.5 381,458.3 487,312.5 607,348.5
Assets
Fixed assets 345.2 356.2 413.0 479.6
Investments 11,291.5 13,887.0 8,835.4 8,835.4
Loans 276,792.8 380,813.8 492,430.9 607,604.1
Net current Assets -12,819.5 -14,489.3 -15,257.5 -10,461.1
Deferred Tax asset 947.5 890.5 890.5 890.5
Total 276,557.5 381,458.3 487,312.4 607,348.5
Source: Company, ACMIIL research

LIC Housing Finance Ltd – Result Update ACMIIL 4

Key Ratios FY09 FY10 FY11E FY12E
Spreads
Cost of Borrowings 8.8% 8.0% 8.1% 8.3%
Yield on Advances 11.1% 10.0% 10.3% 10.5%
Net Interest Income 2.3% 2.0% 2.1% 2.1%
Net interest margins 2.9% 2.7% 2.9% 2.9%
Profitability ratios
Return On Average Assets (ROAA) 1.9% 1.7% 1.8% 1.7%
Return On Average Net worth (ROANW) 23.8% 19.5% 23.2% 22.9%
Balance sheet ratios
Loan to borrowings ratio (%) 108.9 109.6 110.3 108.8
Debt/Equity Ratio (Times) 11.4 10.3 11.0 11.4
Growth Ratios
Borrowings 25.0% 36.7% 28.5% 25.0%
Loans 26.2% 37.6% 29.3% 23.4%
NII Growth 30.2% 22.8% 37.5% 27.1%
Book value 23.6% 37.3% 20.5% 21.0%
EPS 37.3% 11.4% 30.4% 19.0%
Valuation ratios
EPS (`.) 12.5 13.9 18.2 21.6
Book value (`.) 51.2 70.3 84.8 102.5
P/E (X) - - 11.3 9.5
P/BV (X) - - 2.4 2.0
Source: Company, ACMIIL research
Note: FY09 and FY10 figures are adjusted for stock split

LIC Housing Finance Ltd – Result Update ACMIIL 5

 Notes

Institutional Sales:
Ravindra Nath, Tel: +91 22 2858 3400
Kirti Bagri, Tel: +91 22 2858 3731
K.Subramanyam, Tel: +91 22 2858 3739
Email: instsales@acm.co.in
instsales@acm.co.in

Institutional Dealing:

Email: instdealing@acm.co.in

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LIC Housing Finance Ltd – Result Update ACMIIL 6