MOSL: LIC HOUSING FINANCE (Buy)-Miss across the board; asset quality surprises negatively
LIC HOUSING FINANCE: Miss across the board; asset quality surprises negatively
(LICHF IN, Mkt Cap USD2.8b, CMP INR410, TP INR525, 28% Upside, Buy)
- PAT declined by 81% YoY (78% miss) to INR1.5b in 1QFY22. Higher than estimated finance costs of INR36b led to a 13% miss on our NII estimate. Elevated credit costs of INR8.3b (est. INR4.5b) added to the large PAT miss. Large wage revisions undertaken in 1QFY22 have led to a spike in operating expenses, leading to a weak operating performance (PPOP miss of 23% at INR10.3b. Adjusted for wage revision, it was a 13% miss).
- It delivered a healthy loan growth in Home loans. However, LAP and developer book growth has slowed down. Collection efficiency improved to 98% in Jun’21.
- Asset quality surprised negatively, with a sharp rise (+44% QoQ) in GS3 to INR138b. GS3 rose to 5.9% v/s 4.1% QoQ. The GS3 coverage ratio declined by 650bp QoQ to ~33%. Total restructured pool stood at INR53.5b (2.3% of loans), of which a large part (INR47b) is Builder loans.
- While asset quality pain has been pronounced, we draw comfort from LICHF's ability to source low-cost liabilities (due to its strong parentage), favorable Housing Finance cycle, and 11-12% RoE. Valuation at 0.9x FY23E P/BV is attractive. Even though LICHF is still working with the stock exchanges to resolve issues around the capital raise, we have it factored into our estimates. We reiterate our BUY rating with a TP of INR525/share (1.1x FY23E BVPS).
LIC Housing Finance provides loans for purchase, construction, repairs and renovation of houses and flats to individuals, corporate bodies, builders and co-operative housing societies. Co.'s subsidiary is engaged in the business of setting up, running and maintaining assisted living community centre and care homes for senior citizens.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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