High Conviction Idea : Buy LIC Housing Finance Ltd For Target Rs.575 - Centrum Broking
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Business overview
As at Q3FY22, LICHF had advances book of Rs255bn. Loan mix is individual housing (80.5%), retail LAP/LRD (13.7%), and developer (5.8%). Borrowing mix is NCD (54.3%), Banks (27.4%), deposits (8.4%), NHB (4.2%) and CP & others (5.6%). CAR/CET-1 is healthy at 17.0%/15.6%. Branch network stands at 282.
Investment thesis
Sovereign holding and salaried share at 80%+ has led to highest credit rating of CRISIL AAA, which has enabled easier access to cheaper funding sources.
Developer loans are slowing down and credit flow has shifted to individual housing also led by disbursals in affordable. Share of individual housing has risen over Q2FY21 to Q3FY22 from 76.5% to 80.5%.
Most of the stress has already been recognized and Q3FY22 earnings quality was superior as coverage on stage 1&2 improved while OTR pool was stable QoQ. Impact of daily NPA tagging was 1% which was adequately provided for
With higher inflation risk rising, LICHF could benefit from a NIM standpoint as 62% of its borrowings are longer term in nature (NCD + deposits) while most of its loan book is floating.
Key triggers in the near to medium term
Resolutions in some builder/corporate accounts which lead to higher recoveries and/or provision reversals
With the economy bouncing back, demand for home loans could rise which could benefit LICHF.
Key risks
Higher slippages that could emanate from retail
Opex may rise as a result of higher business volumes
Competition from banks could impact NIM and/or loan growth
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