MOSL: LIC HOUSING FINANCE (Buy)-Share of non-core loans on the rise-Liquidity situation fine

LIC Housing Finance: Share of non-core loans on the rise; Liquidity situation fine

(LICHF IN, Mkt Cap USD2.8b, CMP INR406, TP INR550, 35% Upside, Buy)

• LIC Housing Finance’s (LICHF) PAT increased 12% YoY to INR5.7b (9% miss), driven by stable loan growth but higher-than-expected provisions.
• Loan book grew 16% YoY to INR1.76t. However, non-core loans continue driving overall loan growth. Retail home loan growth was 3% QoQ/9.3% YoY. It’s interesting to note that builder loan disbursements of INR29b were the highest in a quarter historically. Non-core loans now account for 22% of the total loan book.
• NII increased 5% YoY to INR10.1b, as margins shrank ~25bp to 2.4%. Yields were down 40bp on a YoY basis, but improved 8bp sequentially to 9.6%.
• Spreads of 1.3% were in line with prior quarter trends and appear to have bottomed out. We reiterate that spreads will remain stable hereon, as the recent loan rate hikes (60bp since April 2018) will offset rising cost of funds.
• There was a steep sequential increase in the share of CPs and bank borrowings. Share of CPs now is 9% v/s 6% in the prior quarter, while that of bank borrowings increased from 12% to 16% sequentially.
• GNPL ratio was sequentially stable at 1.2%. However, credit costs came in at INR2.2b v/s our estimate of INR600m as ECL provisioning increased to 74% of GNPL (v/s 45% in the prior quarter).