EUR 120.00 For Business Accounts Only

MOSL: LIC HOUSING FINANCE: Earnings beat, but incremental slippages from the restructured pool can keep credit costs elevated

LIC HOUSING FINANCE: Earnings beat, but incremental slippages from the restructured pool can keep credit costs elevated

(LICHF IN, Mkt Cap USD2.6b, CMP INR379, TP INR440, 16% Upside, Buy)

• LICHF reported a PAT of INR9.25b (~18% beat), up 5x YoY, but down 17% QoQ, led by contained OPEX (CIR of ~12%) and lower than estimated credit costs of INR3.1b (est. INR4.5b).
• Asset quality exhibited deterioration, with GS3/NS3 increasing by ~30bp QoQ each to 5%/3%. The ~90bp increase in GS2 was predominantly attributed to reclassification of restructured loans on actual days past due (dpd) basis. This was accompanied by an increase in COVID-related provisions to INR6.2b (PQ: INR3b).
• Reported yields declined by ~30bp QoQ as of Jun’22. NIM fell ~10bp QoQ to ~2.55% in 1QFY23. Core spreads also declined by ~12bp QoQ to 1.8%, driven by lower yields, even as CoF remained stable sequentially.
• We have increased our FY23/FY24 EPS estimate by ~5% each to factor in higher loan growth and improvement in NIM, even though we remain wary of slippages from restructured loans, which can keep credit costs elevated and result in interest income reversals in the following quarters.
• The management expects demand in Residential Real Estate to remain buoyant, despite rising interest rates. It sees margin sustaining at current healthy levels in FY23. We model a loan book/PAT CAGR of 11%/29% over FY22-24 for a RoA/RoE of 1.3%/13% in FY24. We maintain our Buy rating with a TP of INR440 (0.8x FY24E P/BV).

 

Disbursements healthy; expect 11% YoY growth in the loan book in FY23

• Disbursements in Home loans grew 72% YoY, while Builder and Project loan disbursements grew 30%. Total disbursements grew 76% YoY.
• The loan book grew by ~10% YoY and 2% QoQ. Home loans grew 15% YoY and 3% QoQ, while LAP and Developer loans continued to decline.

 

Asset quality deteriorates; wary of slippages from the restructured pool

• Stage 2 and 3 loans grew by ~120bp QoQ, driven by slippages or reclassification from the restructured pool. PCR on S3 fell 260bp QoQ to ~41%. Volatility in PCR across S1 and S2 continued.
• As per the RBI’s circular, ECL provisions for assets re-categorized as NPA, but classified under Stage 1 and 2 stood at INR1.5b (PCR of 10-11%).