LIC Hosuing Finance-After the Scam

This is from my blog…

Your thoughts invited…

By now, everybody is aware and discussing about how people who earn so much and have such respect in their industries can stoop to such low acts as taking bribes!!! I will not dwell on the moral low that our leaders (both in the corporate and political world) seemed to have sunk to. Our job is to look at LIC Housing Finance as a business and a stock.

So, what really has happened here? A couple of people have allegedly taken bribes and given out loans to companies. LICHF’s share in this is approximately 300 crores. For a company with assets of 38,000 crores and a net profit of 662 crores (FY10), the amount is not back breaking. Also, let us not jump to the conclusion that all of the 300 crores would end up as NPA. The company is operationally sound and is unlikely to go out of business. After six months, people will forget about this scam (the sad truth is that in this country nobody gets punished for white collar crimes!!!) and LICHF will continue to do well.

The stock has come down from 1300 to around 930 in a span of 3 days. So, what should you (or I for that matter) do? Well, I would think that this might be a good long term opportunity to BUY!!

The situation reminds me of the American Express situation when Buffet bought into it. So, if you have the courage of conviction and your wallet supports you, it might not be a bad idea to be a contrarion and buy LICHF now.

Hi Abhishek,

Without valuing the business how can one take a decision of investing in it? I am new to investing and trying to find out value of LIC HF and then applyingSafetyMargin to value.

Do you have some value that you have calculated?



Hi Yogendra,

The P/B has come down from around 4 to 2.5 in the last few days. That for a company which has a EPS CAGR growth of 30% from FY06 -FY10 (2 years in which were recession-hit).

The company has paid (and increased) dividends consistently for a long time. It is well known for its conservative style of management (other than its CEO taking bribes, that is!!!). Its PE is down to around 11 (and may probably go lower if the fall continues).

The idea here is that you are getting a good company at a valuation which you would not have had the scam not unfolded. Till now the indications are that it is not a organization wide problem but more of a one-off incident, which makes the situation an aberration. Plus, it was very quick to name a new replacement CEO. The sentiment is extremely negative for the company right now. So, I would not be surprised if the company announces some confidence building schemes (split/bonus shares etc).

Hi, Abhishek,

The worry is not just about the 300 Cr.The outstanding loans (corporate loans, esp ones to realty sector)will be cross-checked now. There might be more skeletons.Going forward there might me much more stringent credit norms in place which will affect the loan book growth.

There are charges regarding LIC helping out developers thru IPO and secondary market share purchases.

Its a little too murky for comfort right now.

CMP of 930 does look attractive, but this is one scrip which had a huge runup. Does the price justify a possible degrowth in revenues?



Hi Abhishek,

I was just looking at a couple of reports on LIC HF, two of them being kotak and citi reports. There seems to be consensus about FY 11 EPS being around 20. Div payout till recently has been in the range of around 25% so one can assume a div of around Rs 5 per share. I think in order to shore up investor confidence the company might as well increase the dividend for a couple of years. Book value for FY 11 is expected to be in the range of around 84-85, so at cmp effectively the stock at around 164 is available at less than two times fy 11 BV.

The concern weighing on the stock could be that with hike in interest rates by the govt, there could be squeeze in margins but my guess is that these housing finance companies are very good at passing on interest rate hikes to consumers many times without informing their borrowers as well. Problems could arise if interest rates were to rise to well above 15% or so after which risk of defaults would start hitting all these HF companies.

My interest in this company stems from the fact that this is a kind of stock where one might safely bet around 20-25% of the portfolio and can go to sleep for a few years and watch his money grow. (Only caveat is that there are no further skeletons coming out of its cupboard)


Hitesh Bhai

The market concerns on LIC HF are very valid.

Marketseems to be stress testing itsvaluationtaking into account a hike in the interest rates and an expected correction in the real estate prices incertainpockets like Mumbai.

So two things

1). The growth would slowdown because of high interest rates + the management would (scam) become conservative and would not lend to builders for big projects

2). Correction in certain pockets like Mumbai along with high EMI payments could lead to higher defaults (a large part of loans were made in 2009 and 2010 when real estate price were quite high)

I would suggest to be patient with financials as of now

as well as I don’t have an answer as to when financials would bottom out

also if you are a long long term investors you may buy at any price and you are bound to make money in such stocks



Hi Abhishek,


** BV.The **

** companies.My **



Thanks satnam for your views. It is on my radar but like your style, I intend to stalk the stock and buy it only when I feel comofortable. Currently based on technicals, also it is forming new lows almost every few days so there dont seem to be any buy signals. Plus in weak markets, weaker stocks are going to be hit even harder, so the case will be no different for lichf.

Regarding defaults, I guess in India we might not see too much defaults because of the high proportion of black money involved in transactions involved in real estate buying so in effect the housing loan companies are lending only around 60% or so of the actual valuation when they lend to retail. They would face some rough weather only if real estate prices were to fall real bad to the tune of around 40-50% which seems difficult to envisage.

Hi, I think the worst is over for LIC with regards to the moneymatters scam. They have started giving Corporate Finance again, though the quantum of CF given is way less (74 Cr in Jan+Feb compared to 300 Cr monthly)than what they used to give earlier. The CF contribution to topline will be muted in Q-4(it was abt 11%of total disbursements infirst 3 Qtrs).It is ahigher margin product, so bottom line impact might be even more.

Still the valuations look attractive at the current level. The overall annual results should be good. Retail loan disbursements are very strong from what I hear from the sales teams.

Hitesh, what is your current take on LICHF?



Conference Call By Capital Market.

The conference call was addressed by V K Sharma, Director and Chief Executive Officer of the company:


  • The macro-economic environment has remained challenging, while the company has achieved strong growth in sanction and disbursement.
  • NIM has remained steady in Q3FY2013 and it is expected to improve to 2.2% in Q4FY2013 on account of base rate cut and higher increase in developer loan portfolio.
  • The company expects the cost of funds to ease with southward movement in interest rates.
  • The company is expecting the repricing of Rs 1800 crore liabilities and Rs 2500 crore of assets in Q4FY2013.
  • Gross NPAs of the company increased to 0.74% at end December 2012 from 0.60% at end September 2012.
  • Net NPAs increased to 0.45% at end December 2012 from 0.28% at end September 2012.
  • Three accounts with the exposure of Rs 170 crore together slipped to NPA during the quarter ended December 2012. The first account with the exposure of Rs 100 crore was from construction segment belonging to Chennai city. The second and third account with the exposure of Rs 50 crore and Rs 20 crore each belonged to central India.
  • In case of first account, three partner consortiums have lent Rs 200 crore, which is backed by sufficient collaterals. The account is expected to be recovered by March 2013.
  • The interest reversals on account of fresh slippages stood at Rs 6 crore for the quarter ended December 2012.
  • The company has made 15% provision for incremental NPA, as per regulatory requirement.
  • The outstanding loan portfolio increased 24% to Rs 72704 crore at end December 2012 compared to Rs 58707 crore at end December 2011.
  • The company has disbursed loans worth Rs 16634 crore, registering a growth of 24%. Out of the total, Individual loan disbursals were Rs 15694 crore, a growth of 23%.
  • The outstanding loan portfolio growth has further accelerated to 25% in February 2013 from 24% at end December 2012, while it is above the targeted growth of 20.0%.
  • The company has launched home loan product for women âBhagya Lakshmi' has received an unprecedented response with over 3800 loan applications aggregating to nearly Rs 1000 crore with in a period of 3 weeks of the launch
  • The company has fixed loan portfolio of Rs 27000 crore, which yields the return of 9.7-10.0%.
  • About 50-60% of the incremental disbursement takes place at fixed rate.
  • The company is awaiting the RBI guidelines on entry of new bank and proposes to apply for the bank licence. It is also ready to convert to bank, if required by the regulation.
Conference Call by Capital Market


  • Net Interest Margins for the quarter ended March 2013 improved to 2.44% compared to 2.09% in Q3FY2013 and 2.44% for the Q4 of FY2012. NIM for the whole year stood at 2.18% as against 2.44% for FY2012.
  • Gross NPA for the total portfolio stood at 0.61% and Net NPA was 0.36% as at end March 2013 down from 0.74% of GNPA and 0.45% of NNPA at end December 2012, but increased from 0.42% of GNPA and 0.14% of NNPA at end March 2012.
  • The company disbursed loans of Rs 7536 crore in the Individual loans segment registering a growth of 19%. Total loan disbursal stood at Rs 7725 crore in quarter ended March 2013.
  • During the year ended March 2013, the company sanctioned and disbursed loans totaling Rs 26477 crore & Rs 24358 crore, registering a growth of 20% & 22%, respectively over the previous year. Out of the total, individual loan sanctions & disbursements were Rs 24843 crore and Rs 23230 crore, registering growth of 20% & 22%, respectively.
  • The outstanding mortgage portfolio as at end March 2013 was Rs 77812 crore as against Rs 63080 crore at end March 201, showing an increase of 23%.
  • The customer base of the company increased 8% during FY2013.
  • The company expects the cost of funds to ease with downward movement in interest rates.
  • The fresh additions to NPA during the quarter ended March 2013 were Rs 60-70 crore from one account. However, the company has recovered one account slipped to NPA during previous quarter Q3FY2013.
  • The company doesn't expect further surprises on asset quality.
  • In FY2014, company proposes to focus on improving NIM, disbursement in developer loan portfolio, improving the share of loan against property (LAP) portfolio, reducing the cost of borrowing and raising growth in fee income.
  • The LAP portfolio share is proposed to be improved to 5% during FY2014 from 3.5% at end March 2013. The LTV ratio is maximum at 60% in LAP portfolio, while the yields are higher closer to 13%.
  • The share of bank borrowing currently at 30% at end March 2013, is planed to be reduced to 25-26% during FY2014 to support NIM.
  • Company expects about 20-25 bps reduction in cost of borrowing in FY2014.
  • The composition of liabilities stood at Rs 20484 crore from banks borrowing, Rs 41681 crore of NCDs, Rs 2500 crore of refinance from NHB, Rs 3000 crore from sub-ordinated Tier II bonds and Rs 770 of public deposits at end March 2013.
  • The cost of borrowing was higher of bank borrowing at 10.63% followed by 9.58% in public deposits, 9.43% for NCDs, 8.95% for NHB refinance and 8.9% for sub-ordinated Tier II bonds.
  • The capital adequacy ratio with Tier I capital was at 10.5% and Tier II at 5% at end March 2013.
  • The loan disbursal growth is estimated at 20% for FY2014 and would be ahead of industry growth.
  • About Rs 2500-2700 crore of loans are due for repricing in FY2014 to be repriced in Q1FY2014.
  • The company remains focused on entry in to banking sector

AH…This thread does bring back 'old ’ memories of taking on the money matters-is-dirt-cheap trade…the investment bank in question fell much below it’s liquidation ended up selling at half the value of it’s cash reserves which it had raised in a QIP a month before.absolutely skewed trade underlining the essence of investing in a diversified basket of such securities especially with a scenario heads i dont lose at all and tales i make a lot.depending on what pont you invested in you saw an ‘easy’(depending on your stomach for volatility ) 50-100% return in 1.5 years after the cbi had released the cash and the promoter buying his own shares(and transfering them into his younger brothers account through a HUF trust) in december '12…the absolute ingredients of a masala thriller…lol

just wondering how did you guys fare in either of these counters since this scam?

p.s. yeah, could not help but get reminiscent

VK Sharma MD and CEO of the company addressed the call.

Highlights of the call by Capital Market:

For the quarter ended September 2013, LIC Housing Finance registered a 28% jump in Net Interest income (NII) to Rs 453.40 crore. The jump in NII was due to 23% rise in interest income to Rs 2223.71 crore and 22% rise in interest expenses to Rs 1770.31 crore.

PBT grew 27% to Rs 423.66 crore.

PAT grew 28% to Rs 310.07 crore.

For the six month ended September 2013, NII grew 29% to Rs 908.12 crore. The jump in NII was due to 23% rise in interest income to Rs 4353.97 crore and 22% rise in interest expenses to Rs 3445.85 crore.

PBT grew 33% to Rs 847.68 crore.

PAT grew 32% to Rs 620.58 crore.

Change in strategy

The company has changed its strategy from very aggressive growth to profitability growth to protect its profit margins.

The company strategically reduced landing in Q2 as it decided not to borrow at 11.5% and lend at around 10.5%. Now again borrowing cost has come down to 9.6% and so it is going in full throttle.

One time income and expenses

Other income has one time income of Rs 19 crore due to tax refund. Also there were higher income from mutual funds.

Provisioning has Rs 12 crore of one time provisioning for its investment in Kotak realty Fund. Also company has increased its provisioning considering higher developer bucket loan.

NII to rise going forward

Net Interest Margins for the Q2 stood at 2.22% against 2.10% for the quarter ended September 30, 2012.

During the quarter the company faced pressure on NIMs.

Net Interest Margins for the six months ended September 30, 2013 stood at 2.26% against 2.13% for the corresponding period ended September 30, 2012

The management is confident of ending the year with NIM of 2.4%.


During the quarter, the company disbursed a total of Rs.5947 crore as against Rs.5838 crore for the same period last year. Disbursements in the developer loan segment were Rs 265 crore as against Rs. 121 crore for the same period last year.

For the six months, the company disbursed a total of Rs 11073 crore as against Rs 10629 crore.

Disbursements in the developer loan segment were Rs 332 crore as against Rs. 443 crore for the same period last year.

The company is slowing entering to the developer funding business in a cautious manner to increase its share.

Outstanding Mortgage Portfolio

The Outstanding Mortgage Portfolio as on September 30, 2013 was Rs 83216 crore as against Rs 69119 crore on September 30, 2012, up 20%.

The Individual loan portfolio stood at Rs 80704 crore as against Rs 66458 crore, a growth of 21%.

The Developer loan portfolio stood at Rs 2512 crore as on September 30, 2013 as against Rs 2660 crore as on September 30, 2012.


Gross NPAs in individual segment was Rs 374 crore or 0.46% as on September 30, 2013 as against Rs 406 crore or 0.61% as on September 30, 2012.

Total Gross NPAs for the company including NPAs on Developer Loans stood at 0.73% as on September 30, 2013 as against 0.60% as on September 30, 2012.

NPAs on Developers Loans was Rs 236 cr as on September 30, 2013 as against Rs 246 cr as on June 30, 2013. There were no new issues and the company is managing to recover previous pending repayments o this front.

Good performance in challenging business environment

In a very challenging business environment, the company has been able to maintain good asset quality and improved profitability. For the full year, it expect loan book growth at around 20% with some improvement in margins

Loan book

Fixed rate loan book stood at 50% with a yield of 10.3-10.4%

Over loan book yield is 10.93%.

Loan against property was 3.4%.

Cost of funds

Banks accounted for 28% of total liability and cost of funds was 10.7%, NHB accounted for 4.5% with cost of 9.18%. NCD accounted for 61.4% with a cost rate of 9.4%

Retail deposit is slightly more than 1% with rate of 9.6%.

Outstanding borrowings stood at Rs 75170 crore with incremental spread of 1.2%. This is lower than 1.8% in Q1. However as the bond markets have again become favourable the company expects this to rise back to 1.8% for the full year.


Sanctions were 6500 crore out of which retail sanction was 6150 crore and developer sanction was Rs 350 crore.

Conference Call By Capital Mkt
Addressed by Ms. Sunita Sharma, Managing Director & CEO.

For Q3 FY'14, NIM stood at around 2.16%. Management expects that there is a further scope of improvement for the NIM to rise to around 2.3%.

Loan book has grown by about 19% in first 9 months ending Dec'13.

More than 50% of total loan book portfolio is fixed and rest is floating. Fixed loan book also includes Fixed plus floating book.

The Company sanctioned Rs 6415 crore in the individual loan segment, a growth of 10% on YoY basis during the Dec'13 quarter, while the loan disbursement stood at Rs 5832 crore, up by 6% YoY. Management expects disbursement to pick up from now on and has enough pipelines for a decent growth.

The company still has excess provision of about Rs 140 crore on teaser loans, which will be reversed in next 2 to 3 quarters.

Of the total borrowing about 27% are from Banks at around 10.7% and 63% are from NCD at around 9.4% and rest are mix of subordinated debts, deposits etc around 9%. The company expects the proportion of Bank borrowing in total borrowing to come down further to about 25% in next 6 months.

After many quarters of shrinkage of developer loan book portfolio, the company was able to grow that marginally on QoQ basis. In FY'15, management expects developer loan book also to grow. Adequate care and caution has been taken into account in developer loan book and management is confident of the quality of the same.

Management reiterated the fact that all the concerns on developer loan book are overblown. Also the 4 cases of development project, which are being delayed, adequate provisions have been made to cover the same. Management does not expect any further provisions for any of the existing developer loan portfolio.

Not much update has been received by the company on its application for bank license and management is awaiting the same.

Overall, management expects the year FY'14 to end with a 20% loan growth book. NIM to improve slightly going forward as well.

CAR stood at 17.41% of which Tier 1 capital is 12.48%.

Average ticket size of loan book for the quarter stood at around Rs 19 lakh.

The company has about Rs 8500 crore of liabilities which will come from Reprising in FY'15.

Management expects ROA of 1.5% and ROE to improve from current 18% to around 20% going forward.

Managing Director & CEO, Sunita Sharma addressed the call

Highlights of the call by Capital Mkt;

For the year ended March 2014, the company's total income was Rs.9335 crore as against Rs 7659 crore, up 22%. Revenue from operations grew 22% from Rs 7459 crore to Rs 9073 crore. PBT for the year stood at Rs 1825.50 crore, up 33%.

Net profit after Tax during this period was Rs1317.19 crore against to Rs 1023.21 crore, up 29%.

Other Income for FY 2014 includes Income from investments in various Liquid schemes of Mutual Funds (Rs 101.30 crore against Rs 58.67 crore), Interest on Income Tax Refund Rs 19.47 crore (against Rs NIL) and Interest on Bank Deposits Rs 7.03 crore (against Rs 3.16 crore).

Other Current Liabilities include Temporary Book Overdraft of Rs 2071.04 crore (against Rs 1886.81 crore) which represents cheques issued towards disbursement to borrowers and cheques issued for payment of expenses but not encashed as on March 2014.

The outstanding mortgage portfolio as on March 31, 2014 was Rs 91341 crore against Rs 77813 crore on March 2013, up 17%.Individual Loan Portfolio stood at Rs 88559 crore as on March 2014, up 18%.

Gross NPAs of the company stood 0.67% on March 2014 as against 0.61% as on March 2013. Net NPAs were Rs 0.39% as against 0.36% for the corresponding dates.

Gross NPAs in the individual loan segment stands at 0.27% as on March 2014 as against 0.32% as on March 2013. This is the lowest in the industry.

The Board has recommended a dividend of Rs 4 50 per equity share of Rs. 21- each (225% including Silver Jubilee dividend of 25%) subject to approval of the members of the Company at the forthcoming Annual General Meeting.

This was a year where the macros have been very challenging. In spite of the difficult environment the company has delivered yet another year of strong performance in all the areas of operations- portfolio growth, margin expansion and continue to maintain industry best asset quality.

In FY 2014 the company was more focused on profitable growth which it has managed to achieve.

Due to the challenging business environment, the company had deliberately not focused on faster growth but is now focused on faster growth.

Net Interest Margins for the full year was 2.25% as against 2.18 % for the FY 2013.

The company is confident of raising NIM from 2.25% in FY 2014 to 2.30-35% for FY 2015.

Margins increased due to reduced borrowing cost. The company reduced borrowings from banks from 30% to 25%. The company replaced bank borrowings with bonds.

The company expects loan book growth of 20% in FY 2015 from 16% seen in FY 2014.

The company had launched LAP aggressively only in February 2014. This business saw 35% y-o-y growth. Its portfolio grew from 3.4% to 3.6% in FY 2014. The company hopes to increase this further to 5% in FY 2015.

For LAP portfolio the average ticket size is Rs 25 lakh.

Total disbursement in FY 2014 was Rs 25500 crore out of this Rs 1000 crore was developers loan.

For FY 2014 total provisioning of gross loan will be around Rs 90 crore.

One corporate account of Rs 130 crore which went into NPA is still NPA. There were two round of auctions and the company is hopeful that in the third round it will be able to resolve the issue.

The company is into 25thyear of operation and would like to make it memorable by achieving greater heights.

Of the total borrowing about 25% are from Banks at around 10.7% and 66% are from NCD at around 9.46% and rest are mix of subordinated debts, retail deposits is around 15% at 9.7% and NHB at 4% at 9.25%.

The company expects the proportion of Bank borrowing in total borrowing to come down further to about 20% in FY 2015 and Bank's share is expected to rise to 70%.

The company generally has target of opening 8-10 branches every year. For FY 2015 target is to open 9-10 more branches/offices.

The company has comfortable CAR but it will depend on business if they will raise more funds or not.

The company's teaser portfolio is Rs 90 crore.

Fixed loan proportion is 56% and average yield is 10.5%.