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Asset quality improving Quick Pointers:

* PAT beat due to better asset quality and lower provisions, but NII miss

* Disbursals within developer and affordable self-employed to increase

LICHF saw a mixed quarter; NII missed PLe by 5% due to lower NIM, which was offset by lower provisions at 11bps (PLe 49bps) and higher other income. NIM declined by 5bps QoQ due to focus on growth. As per LICHF, NIM has bottomed out as (1) share of higher yielding NHL in disbursals is targeted to reach 20% by FY25 end, (2) yields in prime/super-prime have increased by 10-15bps, (3) wholesale portfolio growth would be higher, (4) loans would be disbursed to new segment of self-employed individuals priced at a 250bps premium, and (5) loan mix is shifting from HL to higher yielding NHL/NHC. Double-digit loan growth guidance has been maintained for FY25E. However, we factor in 7.5% loan CAGR over FY24-27E due to competition from banks/large HFCs. Given RoA of 1.7%, re-rating would hinge on better loan growth and stable earnings quality, though asset quality is improving. Keeping multiple at 1.0x, we increase TP to Rs675 from Rs660 and roll forward to Sep’26 ABV. Retain ‘HOLD’.

* PAT beat owing to lower provisions: NII was lower at Rs19.7bn (PLe Rs20.7bn) led by lower NIM as AuM growth was better at 6% YoY (PLe 5.4%). NIM (calc.) was a miss at 2.76% (PLe 2.90%). Yield on loans saw a blip at 9.58% (PLe 9.68%). Cost of funds was a tad higher at 7.79% (PLe 7.73%). Disbursals were better at Rs164.8bn (PLe Rs161.4bn) as disbursals in developer jumped by 2.7x QoQ to Rs14bn. Repayments were lower at Rs105.5bn (PLe Rs118.3bn). Other income was higher at Rs784mn (PLe Rs428mn). Opex at Rs3.1bn was 8.5% above PLe due to higher staff costs/other opex. On asset quality, gross Stage-3 improved QoQ at 3.06% (PLe 3.3%), while PCR was steady at 49.3% QoQ. Provisions were lower at Rs0.8bn (PLe Rs3.5bn) due to improved asset quality and TWO. PAT was 12.5% above PLe at Rs13.3bn.

* Credit growth targeted to reach double digits in FY25: Overall AuM grew by 2.1% QoQ; individual growth was 1.8%, while project grew by 10.8% QoQ. LICHF aims to increase share of loans other than retail housing, in disbursals to ~20% and developer loans to reach 4% of overall loans in FY25. Builders rated BBB and above rating are considered for developer loans. AuM growth guidance of early double digits for FY25 is intact. However, considering the competitive intensity from banks, we are factoring a loan CAGR of 7.5% over FY25-27E. Stage-3 split: housing - 1.26%, developer - 30.13% and IHL - 5.03%.

* Lower NIM; LICHF expects stable NIM hereon: NIM declined by 5bps QoQ due to focus on higher growth, leading to disbursals at lower yields. The management does not expect any further fall in NIM due to (1) increase in pricing by 10bps within 4 tiers for CIBIL score of 700-800, (2) increase in prime/super-prime yields by 10-15bps, (3) growth in wholesale portfolio, (4) introduction of an affordable segment product for self-employed individuals priced at a 250bps premium, (5) shift in the mix from HL to higher yielding NHL and NHC products, and (6) enhanced collection efficiency.

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