PL Stock Report: LIC Housing Finance (LICHF IN) - Q1FY24 Result Update - Better NII to drive earnings upgrade- HOLD

LIC Housing Finance (LICHF IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs427 | TP: Rs430

Q1FY24 Result Update - Better NII to drive earnings upgrade

Quick Pointers:

§ Earnings beat led by higher NIM at 3.2% (PLe 3.0%); NIM guidance raised.

§ Loan growth and asset quality that were impacted should improve.

We raise FY24/25E PAT by 13%/6% as NIM is increased by 27/13bps due to faster repricing of asset yields in FY24E, given higher proportion of fixed rate borrowings (~60%). LICHF reported a mixed quarter; while loan growth was softer and asset quality saw a blip, PAT beat PLe by 10% due to better NII/NIM. Company raised NIM guidance for FY24E from 2.5% to 2.7%. Disbursals and asset quality were weaker in Q1’24 since operations and collections were impacted as 1) restructuring led to transition of manpower, impeding staff bandwidth and 2) technology platform witnessed glitches. As these issues have been sorted, disbursals have normalized in Jun’23 and Stage-3 should reduce. While consensus earnings upgrade positively impacted the stock, earnings quality should improve for further re-rating. We maintain multiple at 0.9x on FY25E ABV and raise TP to Rs430 from Rs410. Retain HOLD.

§ PAT beat led by better NII/NIM; miss on loan growth and asset quality: NII was better at Rs22.1bn (PLe Rs20.4bn) driven by higher NIM, as loan growth was a miss. NIM was ahead at 3.33% (PLe 3.06%) led by better loan yields at 10.1% (PLe 9.8%). Loan growth was lower at 8.1% YoY (PLe 9%); disbursals were a miss at Rs108.6bn (PLe Rs133bn) offset by lesser repayments at Rs94.6bn (PLe Rs96.3bn). Individual growth was 9% YoY while project loans de-grew by 9% YoY. Opex was a miss at Rs2.4bn (PLe Rs2.1bn) due to staff cost and other opex. PPoP was 8% higher to PLe at Rs2bn (PLe Rs1.86bn). Asset quality disappointed; stage-2/3 rose QoQ by 49/59bps to 5.7%/5.0%, while PCR dipped QoQ from 44.4% to 42.2%. Provisions were Rs3.6bn (PLe Rs3.75bn). PAT was ahead at Rs13.2bn (PLe Rs12.0bn).

§ Disbursals lower due to tech execution/restructuring: While Q1 is usually soft, disbursals saw a sharper decline of 32.3% QoQ due to 1) organizational restructuring in Q1’24, as new area and cluster offices were opened which led to transition of manpower and 2) glitches in the technology platform established in Mar’23, which impacted operations in Apr/May’23. Company suggested that these issues have been sorted and volumes have normalized as disbursals were Rs50bn in Jun’23, which may improve. Tech changes have strengthened credit appraisal process and streamlined operations which should reduce TAT. We trim loan growth for FY24/25E by 2% and expect an 8% CAGR.

§ NIM guidance raised; asset quality blip should regularize: Reported NIM increase QoQ from 2.9% to 3.2% was organic, led by faster rise in yields compared to funding cost. While, company expects NIM to normalize, NIM guidance for FY24E has been increased to 2.6-2.75% from 2.5%. Hence we raise NIM by 27/13bps for FY24/25E. Increase in stage-3 QoQ was mainly due to technical glitches in NACH mandates which affected presentation of EMI demand in Apr/May’23 that impacted collections. As per LICHF, this issue too has been resolved and collection efficiency is near normal.

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