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Steady quarter; growth uptick awaited

LICHF reported a minor beat on PAT (+3% vs JMFe) at INR 11.6bn (+144% YoY -2.1% QoQ) driven by healthy NII at INR 20.9bn (flat QoQ, +31% YoY), lower opex (+0.8% QoQ,-6.4% YoY) and stable credit cost at 61bps (+1bps QoQ). NIM decline was lower than expected with it at 3.0%(-4bps QoQ) led by slow increase in cost of funds to 7.61% (+2bps QoQ) and yield compression to 9.65% (-3bps QoQ loan book stood at INR 2.8trn (+1.2% QoQ/ +4.8% YoY), driven by individual home loans (+1.6% QoQ/ +7% YoY) and LAP (+1.2% QoQ/ -1.4% YoY) while dragged by decline in project finance book (-10.7% QoQ/ -21.1% YoY). Slowness in loan growth by far was attributed to technology implementation, structural reforms at organisational level and calibrated growth to improve asset quality. Mgmt. expects pickup in growth to sustain in coming quarters supported by reduction in TAT which is aided by organisational reforms. LICHF continues to be watchful on its project finance book and expects to grow that in a measured manner. We forecast a loan CAGR of 10% over FY23- 26E. GS3/ NS3 improved by -7bps/ -36bps QoQ to 4.26%/ 2.19% and PCR at 48.6%. We build avg. credit costs of c.40bps over FY24-26E. We believe LICHF may witness moderation on NIMs given an impending rate cut cycle as they have higher fixed rate liability book (50%) vs majority assets book being floating rate. This translates into an avg. RoA/ RoE of 1.7%/ 15.5% by FY26E. We maintain BUY on the stock with a revised TP of INR 700 valuing the company at 1xFY26E BVPS.

Soft loan growth, disbursement momentum expected to pick: As of 3QFY24, the loan book stood at INR 2.8trn (+1.2% QoQ/ +4.8% YoY), driven by individual home loans (+1.6% QoQ/ +7% YoY) and LAP (+1.2% QoQ/ -1.4% YoY) while dragged by decline in project finance book (-10.7% QoQ/ -21.1% YoY). Consequently, share of retail home loans marginally increased to 84.9% (+40bps QoQ). Reported prepayment rates remained steady at 10.2% (+1% QoQ). In 3QFY24, disbursement were at INR 151bn (+3.5% QoQ) driven by momentum in disbursements picking up towards the end of the quarter. It was supported by LAP (+20.1% QoQ/ -5.5% YoY) and individual home loans (+2.8% QoQ/ - 5.5% YoY) whereas, contraction in project finance book (-29.6% QoQ, -12.2% YoY). The share of disbursements from small cities (excl. the top 7) increased sequentially to 58% (vs 57% QoQ) also the proportion of salaried remained at 89%. In 3QFY24, LTV was at 52% (vs. 48% YoY) and instalment to income ratio (IIR) stood at 30% (flat YoY). We forecast a loan CAGR of 10% over FY23-26E.

Marginal fall in NIMs aid healthy NII: LICHF reported a beat on PAT (+3% vs JMFe) at INR 11.6bn (+144% YoY -2.1% QoQ) driven by healthy NII at INR 20.9bn (flat QoQ, +31% YoY), lower opex (0.8% QoQ,-6.4% YoY) and stable credit cost at 61bps (+1bps QoQ). Margins decline was lower than expected at 3%(-4bps QoQ) led by slow increase in cost of funds to 7.61% (+2bps QoQ) and yield compression to 9.65% (-3bps QoQ). Mgmt. guided margins of 2.8-3.0% for 4Q24. We forecast NII growth of 13% over FY23-26E. GS3/ NS3 improved by -7bps/ -36bps QoQ to 4.26%/ 2.19%. Gross stage 3 for nonhousing individual book was at 1.71% (vs 1.84% QoQ), non-housing individual loans at 6.5% (vs 7.13% QoQ) and project loans at 40.75% (vs 35.48% QoQ. Credit cost remained stable at 61bps (+1bps QoQ) and PCR at 48.6%. Mgmt. expects some resolutions to come in in next few quarters. We have built avg. credit costs over c.40bps for FY24-26E.

Valuation and view: We believe LICHF may witness moderation on NIMs given an impending rate cut cycle as they have higher fixed rate liability book (50%) vs majority assets book being floating rate. This translates into an avg. RoA/ RoE of 1.7%/ 15.5% by FY26E. We expect LICHF to deliver on its return metrics on the back of a) pick up in loan growth, b) stable margins c) lower credit cost and d) controlled opex. We maintain BUY on the stock with a revised TP of INR 700 valuing the company at 1xFY26E BVPS.

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