Company Update : LIC Housing Finance Ltd By Motilal Oswal Financial Services Ltd
Disbursements weak, but profitability and asset quality healthy
PPOP in line, PAT beat driven by provision write-backs; NIM stable QoQ
* LICHF’s 3QFY25 PAT grew ~23% YoY to ~INR14.3b (~12% beat). NII declined ~5% YoY to ~INR20b (in line).
* Opex was elevated and grew ~36% YoY to INR3.6b (~11% higher than MOFSLe) and the cost-to-income ratio rose ~2pp YoY to ~17% (PY: ~12% and PQ: ~15%). Employee expenses were higher and LICHF had a one-off from prior period gratuity adjustments. PPoP at ~INR17.5b (in line) declined ~7% YoY.
* Reported yields declined ~4bp QoQ to ~9.73% while CoF rose ~5bp to ~7.8% leading to spreads of ~1.95% (PQ: 2.05%). 3QFY25 NIM was broadly stable QoQ at ~2.7%.
* Credit costs net of recoveries resulted in writebacks of ~INR440m, translating into annualized credit costs of -6bp (PY: ~60bp and PQ: 10bp). This included a provision reversal from the sale of a stressed corporate loan to an ARC for a cash consideration of INR2.5b. Further, the company has also built management overlays in this quarter.
Weak disbursements; AUM rises ~6% YoY
* Loan disbursements in individual home loans (IHL) declined ~5% YoY while non-housing individual/commercial disbursements rose 16% YoY. Builder/project loan disbursements grew ~160% YoY.
* Total disbursements rose ~2% YoY but declined ~6% QoQ to ~INR155b. Disbursements were lower by ~INR7b-8b because of losses in business from Bangalore (eKhata issues) and Hyderabad (Project Hydra).
* The overall loan book grew ~6.4% YoY and ~1.5% QoQ. Home loans grew ~7% YoY while developer loan books declined ~40% YoY.
Asset quality continues to improve; GNPA declines ~30bp QoQ
* GS3/NS3 improved ~30bp/10bp to ~2.75%/1.45%. Stage 1 PCR was largely stable at ~18bp (PQ: ~19bp), Stage 2 PCR increased to ~4.7% (PQ: ~4.3%) and Stage 3 PCR declined to ~47.5% (PQ: ~49.3%).
* Stage 2 + 3 assets (30+ dpd) declined ~15bp QoQ to 6.75% (vs. ~6.9% in 2QFY25). ECL/EAD declined ~20bp QoQ to ~1.7% (vs. 1.9% in 2QFY25).
Valuation and view
* During the quarter, loan growth and disbursement growth remained muted primarily due to the loss of business volumes in Bangalore and Hyderabad. Meanwhile, NIMs remained broadly stable sequentially, while asset quality saw a healthy improvement. The company reported provision writebacks during the quarter, leading to a beat on earnings.
* It will be interesting to understand the management’s outlook on demand for mortgages and its guidance on individual loan growth. Guidance on NIM and credit costs for FY26 will also be important. We will review our estimates after the earnings call on 03rd Feb’25.
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