LIC Housing Shares Gain Most In 21 Months On Profit Beat, Better NIM: Brokerages' Take

Shares of LIC Housing Finance Ltd. gained the most in 21 months as most analysts reiterated 'buy' on the mortgage lender citing lower-than-expected credit costs, and better loan growth and net interest margin.

Key Q3FY22 Earnings Highlights (Consolidated, YoY)

• Net profit stood at Rs 767.3 crore, up 6%. That compares with the Bloomberg consensus estimate of Rs 455 crore.

• Revenue from operations was at Rs 5,054 crore, up 3%.

• Net interest income rose 14% to Rs 1,455 crore.

• Total disbursements grew 5% to Rs 17,770 crore.

• Net interest margin was at 2.42% against 2.36%.

Provisions for expected credit loss stood at Rs 5,715.7 crore for the third quarter compared with Rs 2,948 crore a year ago and Rs 5,354.9 crore in the preceding three months. The stage-3 exposure at default rose to 5.04% from 2.68% a year earlier.

Better growth was due to higher disbursements during the festive season, Y Viswanatha Gowd, managing director and chief executive officer, said in a statement. "Our collection efficiencies continued to hold up and some signs of improvement are visible. With the easing of the pandemic, it is expected that growth and asset quality will continue to improve."

Shares of LIC Housing Finance jumped as much as 14.83% on Friday—the most since April 9, 2020. The scrip ended 10.9% higher.

Of the 39 analysts tracking the company, 24 recommend a ‘buy’, seven suggest a ‘hold’ and eight have a ‘sell’ call, according to Bloomberg data. The average of the 12-month price targets implies a 24.3% upside.

Here's what brokerages made of LIC Housing Finance's Q3 FY22 results:

• Upgrades to 'buy' from 'add' with a target price of Rs 447, implying a potential upside of 29.2%.

• Q3 performance once again exhibited volatility; however, this time it surprised positively.

• Post erratic net interest margin movement in H1 FY22 (down 60 basis points since March 2021 to 2%), NIMs retraced to 2.42% thereby supporting NII growth.

• Reported stage-3 assets as per Ind-AS, but has re-categorised Rs 230 crore of provisioning into stage-1 and stage-2 following RBI circular on revised NPA recognition and provisioning.

• Ageing of restructured and stress pools will call for higher provisioning. On a high base and compared to recent quarters’ average, individual home loan disbursement growth of 6% and portfolio growth of 15% was below expectations.

• Post 16% correction in the past three months vs 6% for Sensex, we upgrade the stock.

• Maintains 'buy' with a target price of Rs 510 apiece, implying a potential upside of 49%.

• Profit was led by lower-than-expected opex and credit costs. Top line growth was healthy at 14%, led by loan growth of 11% and better NIM.

• Loan growth was weaker than expectations due to a fall in project loans.

• Upside risks: Stable/improved asset quality, pick-up in disbursal growth.

• Earnings beat was not very convincing.

• Reported NIM improvement of 40 basis points QoQ seems optical as portfolio spread has shrunk 13 basis points QoQ to 1.8% (a multi-quarter low).

• The 7% jump in interest income did not reflect in portfolio yield, which was down 20 basis points QoQ.

• It seems that under Ind-AS presentation, the company has not reclassified assets in stage-3 that were to be re-categorised as NPLs under income recognition, asset classification due to the RBI’s November circular.

• Credit cost at 60 basis points was much lower than preceding three quarters.

• Opex was lower by 20% QoQ with the absence of large retiral benefits related actuarial provisions seen in the preceding two quarters.