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JKSB Quarterly Highlights_People's Leasing & Finance PLC (PLC)_3QFY17

Note Summary:

PLC reported a 17% YoY decline in earnings for 3QFY17, arising mainly from a higher cost to income ratio (+4ppt YoY to 54%) amid an increase in operating expenses (+18% YoY) and a shrinking of NIMs (currently at ~8% vs. ~9% last year). Admin costs related to branch expansion (eleven new branches opened in 9MFY17) have mainly driven the increase in operating expenses, while the contraction in NIMs stems from an expected sector wide increase in funding costs amid an asset-liability maturity mismatch. Given a lack of liquidity in the system, PLC has had to increase its exposure to fixed deposits in FY17 and now offers a rate of 13% on a one year FD. PLC has been less impacted than some of its peers by a slowdown in new vehicle registrations, as the company is more exposed to the dual purpose and hybrid vehicle category which has not been as affected as the small car and three wheeler category. This, coupled with an increase in second hand vehicle demand, and growth in other loan products (such as the company’s ‘Fast Track’ short term working capital loan scheme), has driven healthy net loan book growth of 21% for 9MFY17.

With 9MFY17 earnings at Rs. 3.2bn (-10% YoY), PLC is on track to achieve our full year earnings projection of Rs. 4.1bn (-13% YoY). At its current price of Rs. 16.60, PLC trades at a FY17E P/E of 6.4x and a P/BV of 1.1x (based on Dec 2016 NAVPS), at a slight premium to our NBFI coverage universe. The company has already paid an interim dividend of Rs. 0.75 per share and should maintain its historical full year dividend payment of Rs. 1.25 per share for FY17, translating to a generous 8% dividend yield.