LIC Housing Finance (LICHF) profits in the third quarter of FY21 were characterized by a dramatic increase in mortgage disbursements (up 36% yoy / 40% qoq), cornering the share of market. The moderate cost of credit of only 35/22 bps at T3FY21 / 9MFY21 (virtually no contingency buffers) helps beat the PAT of Rs 7.9 billion. Nevertheless, the undisclosed pro forma stage 3, the lack of clarity on the amount of the restructuring, the provisions of 1.3% on the stress pool (assets of stage 1/2) of 9.6% present a risk for earnings volatility due to additional stress. As growth takes precedence over margins, NIMs are expected to remain stable despite significant benefits in terms of financing costs. Maintaining acquired loan growth at over 10% by FY22 would only increase the need for fundraising. Hold ADD with a revised target price of Rs420 (previously Rs338, assigning 1x FY23E ABV). Main risks: 1) stress resolutions in the developer loan portfolio; 2) maintaining the cost of credit at recent past averages of
– The provisioning buffer is currently thin in the face of the increase in the stress pool, catching up likely: relatively low level of the covid buffer + provision for depreciation (on a pro forma stage-3 estimate) at
– Gaining market share; low rate home loans have done the trick: the company is moving towards a high growth path with competitive rate offers. There has been a significant increase in mortgage disbursements (up 36% yoy / 40% qoq). Few specific nuances reassure about sustainability and a better risk profile: 1) The typical profile is a superior client in the CIBIL first score; 2) affordable housing accounts for 30% of additional disbursements; 3) major dominance markets demonstrate record ownership records; 4) Balance transfer (in) cases being 10% for FY22E.
– Growth precedes margins; Lack of improvement in NIMs: Lower funding costs of> 35bp QoQ /> 70bp YoY did not contribute to a significant increase in NIMs, which increased by 2bp QoQ to 2.36%. This appears to be lower when seen in conjunction with unrecognized pro forma slippages and unreversed interests on the same. Slippages, restructurings, and asset quality behavior (whether recognition or resolution) will keep NIMs volatile. We believe that the benefits of lower borrowing costs will be passed on to key customers for growth and that the improvement in the NIM will be limited.
Shares of LIC HOUSING FINANCE LTD. Last traded on BSE at Rs.395.8 from the previous close of Rs. 394.85. The total number of shares traded during the day was 390,994 in more than 6,786 trades.
The share hit an intraday high of Rs. 416.7 and an intraday low of 390.6. The net turnover during the day was Rs. 158,428,186.