Company Update : LIC Housing Finance Ltd By Motilal Oswal Financial Services Ltd
Earnings in line; NIM contracts and loan growth still muted
Seasonal deterioration in asset quality; reported NIM declines ~20bp QoQ
* LICHF’s 1QFY26 PAT grew ~5% YoY to ~INR13.6b (in line). NII rose ~4% YoY to ~INR20.7b (in line). Fee and other income surged 170% YoY to INR1.2b. PPoP grew ~7% YoY to ~INR18.9b (in line).
* Opex grew ~12% YoY to INR2.9b (~17% lower than est.) and cost-income ratio rose ~50bp YoY to ~13.4% (PY: ~12.9% and PQ: ~19.4%).
* Reported yields declined ~20bp QoQ to 9.6%, while CoB declined ~25bp QoQ to ~7.5%. This resulted in spreads improving by ~5bp QoQ to ~2.1%. NIM contracted ~20bp QoQ to ~2.68%.
* Seasonal slippages in asset quality resulted in credit costs of ~INR1.9b (~42% higher than est.) and translated into annualized credit costs of 25bp (PY: 14bp and PQ: 20bp)
Weak disbursements lead to loan growth of ~7% YoY
* Loan disbursements in individual home loans grew ~3% YoY, while nonhousing individual/commercial disbursements rose 17% YoY. Builder/ project loan disbursements declined ~70% YoY.
* Total disbursements rose ~2% YoY and ~32% QoQ to ~INR131b.
* The total loan book grew ~7% YoY and ~0.6% QoQ to INR3.1t. Home loans grew ~7% YoY, while developer loan book grew ~14% YoY.
Seasonal deterioration in asset quality; PCR declines across all buckets
* GS3/NS3 rose ~15bp/10bp QoQ to ~2.6%/1.3%. Stage 3 PCR declined ~40pp QoQ to ~50.8% (PQ: ~51.2%). Stage 1 PCR declined to ~18bp (PQ: ~20bp) and Stage 2 PCR declined ~25bp QoQ to 3.75% (PQ: 4%).
* Stage 2 + 3 assets (30+ dpd) rose ~30bp QoQ to 6.2% (vs. ~5.9% in Mar’25).
* ECL/ EAD rose ~4bp QoQ to ~1.63% (vs. 1.59% in 4QFY25).
Valuation and view
* LICHF delivered an operationally soft quarter, with subdued loan growth and disbursements. Asset quality weakened, mainly due to seasonal factors, as seen in the sequential rise in its 30+ dpd loans. Margins also came under pressure, primarily from lower yields after the recent repo rate reductions.
* It will be interesting to understand management’s outlook on demand for mortgages, the competitive intensity from banks and its guidance on loan growth. NIM guidance (in the current declining interest rate environment) and credit costs for FY26 will also be important. We will review our estimates after the earnings call on 4 th Aug’25.
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