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MOSL: LIC HOUSING FINANCE (Buy)-Asset quality continues to deteriorate; growth moderates

LIC Housing Finance: Asset quality continues to deteriorate; growth moderates

(LICHF IN, Mkt Cap USD3.1b, CMP INR440, TP INR530, 20% Upside, Buy)

 

Higher credit cost leads sharp miss on estimates

• LICHF’s 3QFY20 PAT of INR6.0b missed our estimate by 13% due to challenges on growth and asset quality. AUM growth slowed to 12% YoY from the run-rate of 15-16%, while GNPL ratio jumped 35bp QoQ to 2.73%. More importantly, the spike in NPL was driven by 40bp sequential increase in the individual lending GNPL ratio to 1.9%, while corporate GNPLs were largely stable.
• Other key highlights: (a) AUM mix was largely stable sequentially, with the share of home loans at 76.8%, LAP at 16.4% and builders at 6.9%. (b) Calculated cost of funds (CoF) declined 25bp QoQ to 8.17%, driving 12bp spread improvement to 1.55%.
• We cut our EPS estimates for FY20/FY21 by 6-8% to account for the elevated credit costs. 

Asset quality continues to deteriorate

• Asset quality remains under pressure. GNPL ratio increased 150bp YoY to 2.73%. What is more concerning is that the individual lending GNPL ratio increased 100bp YoY to 1.9% (0.4%/1.1% in FY18/FY19). On a sequential basis, the builder GNPL ratio stood stable at 14%.
• We are also surprised to see GS2% going up by 100bp QoQ to 5.8%.
• PCR has been maintained at 45%. Credit costs of INR4b were significantly above our estimate of INR2.5b, leading to a sharp miss on estimates.