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Strong earnings beat led by NIM expansion; improvement in asset quality driving lower credit costs

* LICHF reported a PAT of INR11.2b (~50% beat), up ~46% QoQ, led by an allround beat on NII (up 13% QoQ, 8% beat), OPEX (up 21% QoQ, inline), and lower credit costs, which declined 46% QoQ to INR1.9b (est. INR3.9b). PAT fell ~17% YoY to INR22.8b in FY22.

* The overall loan book rose by ~8% YoY and 3% QoQ. Home loans, particularly, grew 13% YoY and 4% QoQ.

Muted loan growth relative to our expectations

* Loan disbursements in Individual Home loans grew 14% YoY. However, nonHousing disbursements grew 18% YoY. Builder/Project loan disbursements moderated YoY, but rose 46% QoQ.

Credit costs declined, driven by ~110bp QoQ improvement in Stage 2+3

* GS3/GS2 fell ~40bp/70bp QoQ to 4.6%/3.1%, with a cumulative reduction of ~110bp in the stressed loan pool.

* LICHF improved PCR on Stage 3 assets by 330bp QoQ to 43%, while credit costs fell to 30bp in 4Q (v/s 60bp in 3QFY22).

* LICHF utilized some COVID-related provisions, which declined to INR3b (~12bp of loans) as of Mar’22.

* ECL provisions for assets re-categorized as NPA, as per the RBI circular and classified under Stage 1 and 2, stood at INR2.3b (largely unchanged)

Improvement in NIM aided by yield and borrowing cost benefits

* NIM improved by ~23bp QoQ to ~2.65% in 4QFY22. Core spreads improved to 1.87% in FY22 from 1.83% in 9M. NIM fell 8bp YoY to 2.3% in FY22, including the one-off impact on interest income in 2Q.

Valuation and view

* NIM normalized to 2.3% in FY22. The management’s guidance on the NIM trajectory in FY23 will be important in a rising interest rate environment. It will be interesting to understand whether there have been any resolutions in the Developer loan book and the levels of credit costs that the management now expects from FY23 onwards. We will look to revise our estimates after the earnings call on 19th May’22

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