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LICHF saw a mixed quarter. PAT was a beat by 7.3% to PLe due to higher NII/NIM but loan growth remains muted at 4.8% YoY. While company expects a 10-15bps YoY compression in FY25E NIM owing to tight liquidity, we see a 37bps fall in NIM (calc.) from 3.0% to 2.6% since cost of bank borrowings (35% share) may further increase. Loan offtake has remained weak due to tech change and sprucing back-office capabilities. Company expects disbursals to pick-up in FY25, however, owing to stiff competition from banks especially in prime housing, we see a loan CAGR of 7% over FY24-26E. While we raise PAT for FY25/26E by 3%/4% due to higher NIM, ABV for FY25/26E is upgraded by 8%/10% led by reduction in GNPA and increase in PCR as most of the stress has been recognized. However, we remain cautious on loan growth and NIM due to competitive intensity. We tweak our multiple from 0.9x to 1.0x on Sep’25 ABV and increase TP from Rs460 to Rs540. Retain ‘HOLD’.

* Growth remains weak but superior margins led to PAT beat: NII was ahead Rs21.0bn (PLe Rs20bn) driven by better NIM at 3.06% (PLe 2.90%) led by lower funding cost at 7.66% (PLe 7.82%). Loan growth was a slight miss at 4.8% YoY (PLe 5.1%) as disbursals at Rs151.8bn were lower (PLe Rs154.0bn) while repayments were higher at Rs119.7bn (PLe Rs112.1bn). Other income was softer at Rs415mn (PLe Rs483mn) offset by lower opex. PPoP was at Rs1.88bn (PLe Rs1.77bn) led by better NII/NIM. On asset quality; stage-2/stage-3 decreased QoQ by 53/7bps to 4.5%/4.3%. PCR improved QoQ from 41.2% to 48.6% due to ECL transfer from stage-2 to stage-3. Provisions were higher at Rs4.4bn (PLe Rs4.2bn). PAT was at Rs116.3bn (PLe Rs108.4bn).

* Credit flow remains weak but likely to improve: Disbursals remained muted due to (1) new technology implementation and (2) organisational change from a 4-tier to 5-tier structure for strengthening back-office infrastructure. New cluster offices have been opened for underwriting and marketing, taking the total to 44 offices (earlier 24 offices). LICHF suggested that disbursals for FY25 would enhance as TAT has reduced since (1) tech issues are resolved and (2) operational capability has improved. However, due to competitive intensity from banks which, we see loan CAGR of 7% over FY24-26E. States like Telangana, Karnataka, parts of North/North East India are seeing good growth.

* NIM guided to fall post FY24; focus on recoveries: Reported NIM for Q3’24 was 3.0% and due to constrained liquidity, management expects a worst case YoY decline of 10-15bps. However, as bank borrowings (35%) are further repriced upwards, funding cost increase in FY25 may surpass that of yield increase. On asset quality, Stage-3 product wise split was: IHL–1.7%, non-housing IL–6.5% and corporate including project loans–40.8%. On recoveries, an ARC committee is formed and external consultant is hired for guidance. First phase involves transferring 10 large accounts to ARCs.

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