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3Q performance grew; Outlook positive

LIC Housing Finance (LICHF) is one of the largest housing finance companies in India. It provides long-term finance to individuals, professionals and builders of residential flats and houses. The company has a wide distribution network of 282 marketing offices.

* For Q3FY21, loans portfolio increased 5.7% YoY driven by Individual loan portfolio (+5.4% YoY) and Project loan (+10.4% YoY). The new loan composition consists of 77.0% of Retail home loans, 7.1% of Project loans and 15.8% of Non-Housing Individual/Corporate loans.

* In Q3FY21, Net Interest Margin (NIM) contracted ~6bps YoY to 2.36%

* Net Profit grew 21.7% YoY to Rs. 727cr, owing to decline in provisions and increase in net interest income.

* The improvement in economy supported by reduction in provisions, stamp duty, home loan rate, and closure of PMAY in March 2021 will boost the demand in real estate sector. Hence, we reiterate our BUY rating on the stock with a target price of Rs. 515 based on rolled over multiple of 1x FY23E BVPS.

Movement in disbursements

In Q3FY21, the company reported loan portfolio of Rs. 220,197cr, a rise of 5.7% YoY, majorly driven by Individual loan portfolio (+5.4% YoY). However, total disbursements stood at Rs. 16,857cr, a growth of 27.9% YoY due to increase in Individual home loan segment by 36.1% YoY to Rs. 14,511cr, partially offset by decline in Projects loan segment by 8.4% YoY to Rs. 852cr.

Growth in net interest income

In Q3FY21, total income fell 1.5% YoY to Rs. 4,924cr. Net interest income increase to Rs. 1,281cr, a rise of 2.2% YoY, however, NIM fell to 2.36% from 2.42% in Q3FY20. The yields on advances and average cost of borrowed funds contracted 120bps YoY and 140bps YoY, respectively to 8.9% and 6.5%, respectively. Operating profit before provision rose 1.5% YoY to Rs. 1,160cr, with reduction in total expenditure. Net profit rose 21.7% YoY to Rs. 727cr, due to the decline in provisions (-52.1% YoY)to Rs. 191cr

Asset quality decline on higher

ECL Exposure at default (EAD) Stage 3 fell 4bps YoY to 2.68%, however, Expected Credit Loss (ECL) Stage 3 provisions rose by 15.4% YoY to Rs. 2,946cr. As of December 31, COVID-19 and impairment provisions stood at Rs. 212cr and Rs. 187cr, respectively.

Key concall highlights

* In 9MFY21, Total capital adequacy/TIER-1 ratio stood at 14.49x/13.07x, compared to 12.5x/14.4x in 9MFY20.

* The company changed the loan portfolio composition - 77.0% Retail home loans, 7.1% Project loans and 15.8% Non-Housing Individual/Corporate loans.

* The company has fully resumed its operations from office after a COVID-19 lockdown last year; Collection efficiency stood at 98% at the end of year.

Outlook & Valuation

In 2HFY20, economy started to pick up and it is expected to improve in upcoming quarters as well. The reduction in provisional requirements supported by increase in demand in real estate sector, reduction in stamp duty and home loan rates might boost the Company’s performance in near to medium term. Therefore, we reiterate our BUY rating on the stock with rolled over price target of Rs. 515 at 1x FY23E BVPS.

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