PL Stock Report: LIC Housing Finance (LICHF IN) - Q2FY24 Result Update - Loan growth challenges persist - HOLD

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

Rating: HOLD | CMP: Rs449 | TP: Rs460

Q2FY24 Result Update - Loan growth challenges persist

Quick Pointers:

♦ Earnings beat led by better NIM and lower opex; provisions remain high.

♦ Disbursals normalizing but loan growth guidance vs delivery to be watched.

LICHF reported yet another weak quarter. While PAT was a beat by 2.8%, loan growth was muted at 6.0% YoY and provisions remain lofty. Disbursals were in-line and muted loan growth was led by higher repayments which was partly due to closure of a large developer account. Tech issues that were dragging disbursals have been alleviated and company sees loan growth of 10-12% in FY24E which would be achieved on back of better sanction to disbursal ratio (80% in Q2’24; normal 90-95%). However, we remain circumspect on delivery of the same due to heightened competition from banks. We expect a loan growth of 7-8% over FY2-26E. Although stage-3 declined QoQ due to (1) TWO of Rs9.25bn and recoveries of Rs2-3bn, credit costs remain elevated owing to interest income write-offs. We maintain our multiple at 0.9x but increase TP to Rs460 from Rs430 as we roll forward to Sep’25 ABV. Retain HOLD.

♦ Weak quarter; loan growth remains weak with elevated provisions: NII was Rs21.1bn (PLe Rs20.7bn) driven by higher NIM as loan growth was a bit lower. NIM was ahead at 3.13% (PLe 3.05%) led by lower funding cost at 7.7% (PLe 7.9%). Loan growth was softer at 6% YoY (PLe 7%); disbursals were in-line at Rs146.7bn but repayments were more at Rs131.2bn (PLe Rs103.1bn). Opex was lower at Rs2.6bn (PLe Rs2.8bn) due to staff cost and commission expenses. PPoP was Rs1.89bn (PLe Rs1.83bn) led by better NII/opex. On asset quality; stage-2/stage-3 decreased QoQ by 67/63bps to 5.1%/4.3% due to more recoveries/write-offs. Provisions were higher at Rs4.2bn (PLe Rs4bn). PCR was 41.2% (42.3% in Q1’24). PAT was Rs118.8bn (PLe Rs115.6bn).

♦ Repayments dragged loan growth; tech niggles sorted: Higher repayments were partly led by closure of one big project loan account. Tech issues that impacted credit flow in last 2 quarters, are sorted, and August, September and October have seen consistent improvement in disbursals. In Sep’23 disbursals were Rs48bn which enhanced to Rs51bn in Oct’23. Company is targeting a loan growth of 10-12% YoY in FY24 which would be driven by increasing sanction to disbursal ratio which is currently 80% (normal 90-95%). This would be achieved by reducing TAT and optimizing new cluster offices. However, due to competitive intensity from banks which is also reflecting in more repayments, we expect loan growth to range from 7-8% over FY23-26E.

♦ Stressed pool declined but provisions remain elevated: Decline in stage-3 was mainly driven by (1) TWO of Rs9.25bn (2) Rs5bn write-off towards interest income on EAD and (3) recoveries of Rs2bn-3bn. PCR stood at 41% but aim is to reach 50% led by lower write-offs and higher recoveries. Stage-3 product wise split was: IHL–1.17%, non-housing IL–7.13% and corporate including project loans–35.48%. Company expects NCLT cases totaling to Rs4-5bn to be resolved in Q3’24; strategy of one-time settlement and sale to ARC would also be explored in case of lumpy and sticky loans.

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