LIC Housing Finance targets upgrade after stable performance in Q3

LIC Housing Finance (LICHF) reported a quarterly profit of Rs 1,160 crore for the December quarter of 2023-24.

The earnings reported were up 142 per cent year-on-year (Y-o-Y), down 2 per cent quarter-on-quarter (Q-o-Q), driving return on assets (ROA) and return on equity (ROE) to 1.6 per cent and 15.7 per cent, respectively.

Disbursements picked up with 8 per cent Q-o-Q growth, though assets under management (AUM) growth remained subdued at 5 per cent Y-o-Y and 1 per cent Q-o-Q.

Barring the low AUM growth, other numbers were satisfactory and better than consensus.

The net interest margin (NIM) was stable at 3 per cent leading to a beat on net interest income (NII) estimates.

The asset quality improved with a decline in both GS-3 and GS-2 stressed loans and stable credit costs.

Overall disbursements increased 8 per cent Q-o-Q, driven by retail loans (up 13 per cent Y-o-Y).

Project loan disbursements were down 13 per cent Q-o-Q. Individual housing loans increased 7 per cent Y-o-Y and 2 per cent Q-o-Q.

Loans against property (LAP) declined 2 per cent Y-o-Y and were flat Q-o-Q.

Management expects the benefits of organisational restructuring and technological updates made in FY24 to accrue from FY25 and result in higher AUM growth of 7.5 per cent for FY25 (versus an expected 4 per cent for FY24).

NIM for the quarter was largely stable at 3 per cent driven by sequentially stable yields and cost of finance (CoF) at 9.6 per cent and 7.6 per cent respectively.

The NII grew 31 per cent Y-o-Y and was flat Q-o-Q.

Opex was controlled and grew 1 per cent Q-o-Q, while pre-provision operating profit (PPOP) grew 39 per cent Y-o-Y (declined 1 per cent Q-o-Q).

Management expects NIMs to compress further and remain in the range of 2.8-3.0 per cent in Q4FY24.

Further, NIM compression may occur in FY25 due to competitive intensity in the mortgage sector. All asset quality indicators improved sequentially with the gross non-performing assets (GNPA) and NNPA improving by 7bps and 36bps Q-o-Q to 4.3 per cent and 2.2 per cent respectively in Q3FY24.

Similarly, Stage-2 assets (GS-2) also improved to 4.5 per cent (down 53 bps Q-o-Q) and the provision coverage ratio (PCR) for Stage-3 (GS-3) assets increased to 49 per cent (41 per cent in Q2FY24).

The total provisions (ECL) increased 10 bps Q-o-Q to 2.45 per cent (vs 2.34 per cent in Q2FY24).

The credit cost was stable sequentially at 0.6 per cent while write-offs moderated to Rs 57.7 crore.

There are potential upsides from the likelihood of provision reversals on stressed wholesale assets in FY25. As of 9MFY24, reported yields and CoF stood at 10 per cent and 7.7 per cent, respectively, leading to spreads of about 2.3 per cent.  

LICHF has finalised its ARC policies and an ARC committee has been formed.

The company has also appointed a consultant who will help evaluate ARC proposals.

On a pilot basis, LICHF will take 10 stressed accounts to ARCs in FY24.

Next year, it might take an even bigger loan pool to ARCs, depending on the outcome of the pilot. Management guided for credit costs of 50-55 bps in FY24 and lower CCs in FY25.

Most analysts have upgraded target valuations on the stock to around the 750 level.

The stock has gained 13 per cent in the last month and it has moved 1 per cent up in the last two sessions.