LIC Housing Finance Stock Research Report

Earnings beat aided by benign credit costs

♦ LICHF’s 2QFY25 PAT rose ~12% YoY to ~INR13.3b (~11% beat). 1HFY25 PAT grew by ~5% and we expect 2HFY25 PAT to grow by 11% YoY. NII declined ~6% YoY to ~INR19.7b (in line). Interest income from recoveries in NPA accounts stood at ~INR860m in 2QFY25 (vs. INR900m in 1Q).

♦ Opex grew ~20% YoY to INR3.1b (~11% higher than MOFSLe) and the costincome ratio rose ~225bp YoY to ~15% (PY: ~12%). PPoP at ~INR17.4b (in line) declined ~8% YoY.

♦ Reported yields and CoF declined ~5bp each to 9.8% and ~7.7%, respectively, leading to spreads of 2.05% (PQ: 2.1%). Reported 2Q NIM contracted ~5bp QoQ to ~2.7%. The company believes NIM likely to have bottomed out and guides for ~5-10bp improvement in NIM. We estimate NIM of 2.8%/2.7% in FY25/FY26.

♦ We raise our FY25 EPS estimates by ~4% to factor in lower credit costs. We estimate a CAGR of 9%/6% in advances/PAT over FY24-27 and RoA/RoE of 1.6%/13.5% in FY27.

♦ The company is looking to diversify its product mix by increasing the proportion of non-housing loans and the self-employed customer mix. Riskreward is favorable at 0.9x FY26 P/BV. Reiterate BUY with a TP of INR760 (premised on 1x Sep’26E P/BV).

Loan growth improves but still muted; disbursements rise ~12% YoY

• Loan disbursements in individual home loans (IHL) increased ~4% YoY, while non-housing individual/commercial disbursements rose 18% YoY. Builder/ project loan disbursements jumped ~223% YoY. Total disbursements rose ~12% YoY to ~INR165b.

• Total loan book grew ~6% YoY and ~2% QoQ. Home loans grew ~7% YoY, while developer loan book declined ~42% YoY. We estimate total loan growth of ~8% YoY in FY25.

• LICHF has a strong pipeline in the developer finance segment, which LICHF anticipates to sustain in 2HFY25 as well. The company has identified select developers after taking into consideration their credibility, brand and external credit ratings. LICHF shared it will only lend to developers which have BBB or higher credit rating. It guided for the developer book in the loan mix to improve to ~4% (vs. ~3% now) by Mar’25 and to 5-6% by Mar’26.

Highlights from the management commentary

1. The company has launched a new product in the affordable space focusing on the self-employed customer segment, which has ~250bp higher yields than the prime housing yields. It also expects some benefits on yields from its tweaking the interest rates based on a smaller range of CIBIL scores.

2. LICHF has ~60% floating-rate liabilities, including ones that will get repriced in one year. In addition, the company is also getting into derivative contracts and swaps to manage the fixed rate liabilities better in a declining interest rate environment.

Asset quality improves; GNPA improves ~25bp QoQ

◊- GS3/NS3 improved ~25bp/15bp to ~3.1%/1.6%. Stage 1 PCR was largely stable at ~19bp (PQ: ~18bp), Stage 2 PCR increased to ~4.3% (PQ: 3.9%), and Stage 3 PCR was broadly stable at ~49.4% (PQ: ~49.6%).

◊- Stage 2 + 3 assets (30+ dpd) declined ~45bp QoQ to 6.9% (vs. 7.35% in 1QFY25). ECL/EAD declined ~10bp QoQ to ~1.85% (vs. 1.95% in 1QFY25).

◊- Annualized credit costs were benign at ~10bp (PY: ~60bp and PQ: ~20bp). We model credit costs of ~25bp/35bp in FY25E/FY26E.

Valuation and view

> LICHF has strong moats in retail mortgages and on the liability side. It has demonstrated its ability to pass on higher borrowing costs to customers. The company is making substantial efforts towards recovery and anticipates further account resolutions moving forward.

> LICHF shared that there is one ~INR4b developer account, which has gone to the ARC and is undergoing the Swiss challenge. There are 4-5 developer accounts in various stages of resolution. Discussions are moving forward and LICHF expects one big account to get resolved in 3QFY25.

> LICHF’s valuation of ~0.9x FY26E P/BV reflects its inability to deliver stronger loan growth, which improved in 2Q but it still remains muted. We estimate RoA/RoE of 1.6%/13.5% in FY27 and reiterate our BUY rating with a TP of INR760 (based on 1x Sep’26E BV).

> Key downside risks: a) elongated period of weak loan growth because of muted demand or high competitive intensity; and b) volatility in NIM profile and ECL provisioning.