LIC Housing Finance Results Review Report - Balance sheet beefs up; P&L to stay soft - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities and Mr. Deepak Shinde, Institutional Research Analyst, HDFC Securities

LIC Housing Finance's (LICHF) 4QFY21 earnings were better than our estimates on the back of funding cost tailwinds, lower-than-anticipated opex and, low tax rate. Disbursements witnessed a sharp uptick across categories to reach an all-time high of INR 224bn (33% QoQ). Asset quality in the core home loan segment deteriorated, with GNPA at 1.9%, while developer NPAs remain elevated at 18%. However, the company shored up its provisioning significantly (INR9.8bn, 0.4% of loans) in GS III as well as early-bucket assets. We revise our FY22/FY23 estimates upwards by 5.4%/6.2%, driven by higher loan growth in FY22, while we remain conservative on our loan loss estimates. Maintain REDUCE with a revised target price of INR 402 (earlier INR 376).

Asset quality remains a concern: LICHF's asset quality witnessed deterioration with GS-III at 4.2% (~3.7% on proforma basis in 3QFY21), individual home loan GNPA at 1.9% (Q3FY21: 1.2%) and project loan GNPA at 18% (3QFY21: 16%), while GS-II witnessed ~75bps contraction to 6.19%. Over the years, the non-core segments have contributed to most of the loan growth, resulting in build-up of disproportionate risk.

Higher PCR offers some comfort and may remain elevated: Provisions clocked in at INR 9.7bn during the quarter compared to INR 1.8bn/0.27bn in Q3FY21/Q4FY20 respectively. While the GS III PCR dipped from 50% to 40% sequentially on account of delinquencies, early-bucket provisions were shored up during the quarter (GS II at 0.6% vs negligible in 3QFY21). We believe that portfolio delinquencies are yet to stabilise and expect provisions to remain elevated at 0.65% during FY22-FY23E on the back of macro (second wave of pandemic) and micro risks (LICHF's non-core portfolio).

Growth rebounds strongly, building into our FY22 forecasts: LICHF witnessed strong growth in disbursements (~98%/33% YoY/QoQ), driven by core home loans as well as the projects portfolio. The company continues to enjoy CoF tailwinds (incremental cost of borrowing at 5.15%), aiding its NIMs (2.66% in 4QFY21).

Shares of LIC HOUSING FINANCE LTD. was last trading in BSE at Rs.494.9 as compared to the previous close of Rs. 521.75. The total number of shares traded during the day was 834896 in over 18048 trades.

The stock hit an intraday high of Rs. 517 and intraday low of 492.7. The net turnover during the day was Rs. 420596754.

Source : Equity Bulls

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