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Inline quarter; pick-up in growth to be key monitorable

LICHF reported an inline quarter with PAT at INR 11.9bn (+288% YoY -10.2% QoQ) driven by healthy NII at INR 21.1bn (-4.7% QoQ, +81% YoY) and marginal increase in provisions to INR 4.1bn. Margins declined to 3.04%(-17bps QoQ) led by increasing cost of funds to 7.59% (+19bps QoQ) and yields declined to 9.68% (-5bps QoQ). Loan book stood at INR 2.78trn (+0.6% QoQ/ +6% YoY), driven by individual home loans (+1.6% QoQ/ +8.3% YoY) while dragged down by LAP (-1.1% QoQ/ -0.6% YoY) and project finance (-15.3% QoQ/ -18.2% YoY). Slowness in loan growth was attributed to disbursements being impacted on account of LICHF undergoing technological revamp, this saw a reversal in trend towards the end of the quarter. Mgmt. maintained its growth guidance at 11-12% for current fiscal. We forecast a loan CAGR of 9% over FY23-25E. LICHF’s GS3/ NS3 stood at 4.33%/ 2.55% (-63bps/ - 32bps QoQ). LICHF witnessed increase in credit cost to 60bps (vs 52 bps QoQ) on account of additional ECL provisions amounting to INR 1043.3mn against repossessed assets for sale. We build avg. credit costs of 52bps over FY24-25E. We maintain BUY on the stock with a revised TP of INR 550 valuing the company at 0.9x FY25E book in return for RoA/ RoE of 1.4%/ 13.9%, respectively by FY25E.

* Soft loan growth, momentum expected to pick: As of 2QFY24, the loan book stood at INR 2.78trn (+0.6% QoQ/ +6% YoY), driven by individual home loans (+1.6% QoQ/ +8.3% YoY) while dragged down by LAP (-1.1% QoQ/ -0.6% YoY) and project finance (- 15.3% QoQ/ -18.2% YoY). Consequently, share of retail home loans in the mix increased to c.84% (+84bps QoQ). Reported prepayment rates edged up to 10.3% (vs. 9.7% YoY) on account of lumpy prepayments in project loans. In 2QFY24, disbursement declined 12.6% YoY to INR 147bn (+35.1% QoQ) owing to momentum in disbursements picking up towards the end of the quarter which was impacted due to revamp of technology. It was supported by project finance (+112.4% QoQ, +31% YoY) whereas, LAP (+36.3% QoQ/ -22.3% YoY) and individual home loans (+32.9% QoQ/ -12.5% YoY) was soft. The share of disbursements from small cities (excl. the top 7) increased sequentially to 57% (vs 55% QoQ). In 2QFY24, LTV was at 52% (vs. 48% YoY) and instalment to income ratio (IIR) was at 28% (vs 29% YoY). We forecast a loan CAGR of 9% over FY23-25E.

* Inline operational quarter: LICHF reported a PAT of INR 11.9bn (+288% YoY -10.2% QoQ) driven by healthy NII at INR 21.1bn (-4.7% QoQ, +81% YoY) and marginal increase in provisions to INR 4.1bn. Margins decline was lower than expected at 3.04%(-17bps QoQ) led by increasing cost of funds to 7.59% (+19bps QoQ). Mgmt. remains confident on maintaining their guidance of 2.6-2.8% as cost of borrowings is expected to inch up. We forecast NII growth of 14% over FY23-25E.

* Headline asset quality improves: Gross stage 3 improved by 63bps QoQ at 4.33% whereas net Stage 3 improved by 32bps QoQ at 2.55%. Gross stage 3 for non-housing individual book was at 1.17% (vs 2.2% QoQ), non-housing individual loans at 7.13% (vs 7.8% QoQ) and project loans at 35.48% (vs 42.12% QoQ). The decrease in stage 3 was largely due to LICHF’s continued focus on recoveries. Mgmt. expects some lumpyresolutions in the coming quarter. LICHF witnessed increase in credit cost to 60bps (vs 52 bps QoQ) on account of additional ECL provisions amounting to INR 1043.3mn against repossessed assets for sale. We have built avg. credit costs over 52bps for FY24-25E.

* Valuation and view: We expect LICHF to deliver on its return metrics on the back of a) pick up in loan growth, b) maintaining margins guidance c) lower credit cost and d) controlled opex resulting in improving RoAs/ RoEs of 1.4%/ 13.9% by FY25E (PAT CAGR of 25% over FY23-25E). Maintain BUY with revised TP of INR 550 valuing the company at 0.9x FY25E ABV.

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