Hold LIC Housing Finance Ltd For Target Rs. 575 by Prabhudas Liladhar Capital Ltd
Growth levers in place; Margins hinge on rate trajectory
While Q4 disbursements picked up (+9.7% YoY), higher repayments resulted in muted loan book growth of 4.4% YoY to Rs3,161.7 bn. We expect AUM growth recovering to 10%/9% in FY27/28E (from low base of FY26), supported by higher retail disbursals, higher third-party sourcing/ co-lending, a dedicated affordable housing vertical, and ~200 new frontline hires. We expect CoF to inch up in FY27, with NIM moderating by 6/18bps in FY27/28E; possibility of a repo-rate hike likely to exert some pressure. Headline asset quality saw an improvement, and we build a credit cost of ~17/20bps over FY27/28E. We slightly tweak FY27/ FY28E estimates factoring in pick-up in growth amid rate hike possibility. We maintain the multiple of 0.7x on Mar-28E P/ABV, resulting in TP of Rs 575. Retain ‘Hold’
• Expect growth to pick up in FY27/ FY28E:
While Q4 disbursements picked up at Rs210.2bn (+9.7% YoY, 30.6% QoQ), higher repayments (~Rs191bn) led to 4.4% YoY/ 0.6% QoQ growth in loan book at Rs3,161.7bn. Individual HL/Non-housing Individual/NHC-Project Loans/NHC-Other Loans contributed to 84.5%/ 11.3%/ 3%/ 1.3% of the portfolio. The AUM mix in terms of salaried/non-salaried borrowers remained stable at 86:14. While FY26 AUM growth was muted due to intense competition from banks, LICHF expects to pick up the slack in FY27 with a target of 10%-12% growth. It has guided disbursements of ~Rs 780bn in FY27 by increasing third-party sourcing/co-lending, setting up dedicated affordable housing vertical and beefing up sales team (~200 frontline employees). On a conservative basis, we build a disbursement growth of 7.3%/5.1% YoY, translating into loan growth of 10%/9% for FY27/28E.
• NIM to moderate over FY27-28E:
Q4 yield contracted QoQ to 8.89% (vs. 9.07% in Q3), while cost of borrowing improved to 6.97% (vs. 7.41% in Q3). Consequently, reported NIMs inched up to 2.80% (vs. 2.69% in Q3). BT-out for FY26 stood at Rs128bn. Company expects to maintain reported NIM in the range of 2.5-2.7% for FY27E with a focus on high-yielding segments (LAP/LRD). Management is anticipating a PLR hike in H1FY27 as bond yields have hardened. We expect NIM to moderate by 6/18bps in FY27/28E, factoring an elevated CoF and possibility of a repo-rate hike.
• Headline asset quality improves:
Asset quality improved in Q4 with GNPA/NNPA at 2.16%/1.06% vs. 2.45%/1.11% in Q3. Stage 2 assets improved by 30bps QoQ to 2.78%. Corporate NPA exposure stood at Rs28.4bn; Management has gone to NCLT for one of these big cases and the effect of resolution is expected to reflect in books in May’26. Construction finance underwriting standards are tightened with exclusion of BBB-rated developers. We build a credit cost of 17bps/20bps in FY27/ FY28E.
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