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Loan growth remains tepid; margin pressure persists Disbursements grew ~14% YoY; NIM declined ~20bp QoQ

* LIC Housing Finance’s (LICHF) 1QFY27 PAT grew ~9% YoY to ~INR14.9b (in line). NII rose ~1% YoY to ~INR20.8b (in line). Fee and other income declined 26% YoY to INR420m.

* Opex grew ~16% YoY to INR3.4b (in line) and the cost-income ratio rose ~225bp YoY to ~16.1% (PY: ~13.8% and PQ: ~17%). Higher employee expenses were primarily attributed to an increase in employee gratuity provisions by INR220m (driven by higher G-Sec yields).

* PPoP declined ~3% YoY to ~INR17.8b (the company has reclassified recoveries from written-off loans from other operating income to credit cost line item, which is now presented net of recoveries). Credit costs (net of recoveries) stood at -INR1.1b and translated into annualized credit costs of -14bp (PY: 17bp and PQ: -4bp).

* LICHF guided for loan book growth of ~8-10% and disbursement growth of ~10-12% in FY27. To support growth, the company continues to diversify toward higher-yielding segments such as LAP, LRD, and developer finance. The company expects developer finance disbursements to improve, driven by a selective focus on Grade-B developers while maintaining pricing and underwriting discipline. It will roll out affordable housing in a calibrated manner, while ongoing digital investments are expected to improve customer acquisition, TAT, and operating efficiency.

* The company expects its borrowing costs to increase marginally by ~3-4bp. LICHF remains focused on preserving profitability while pursuing loan growth and has guided for NIM of ~2.6% in FY27. Margin pressure from intense competition in the home loan segment and elevated BT-outs is expected to be partly offset through a higher mix of better-yielding nonhousing loans.

* LICHF’s near-term loan growth trajectory will remain weak due to muted disbursement growth and higher competitive intensity, resulting in elevated BT-OUTs and repayments. Margins will remain a key monitorable amid high competitive intensity in the home loan segment, with the success of diversification toward higher-yielding segments being critical for improving profitability. Asset quality remained stable, supported by improving portfolio trends and recoveries from legacy stressed accounts.

* LICHF’s valuation of ~0.6x FY27E P/BV reflects its inability to deliver a respectable double-digit loan growth. We estimate a CAGR of ~7%/3% in advances/PAT over FY26-28E and RoA/RoE of 1.7%/12% by FY28E. With no near-term catalyst, we reiterate our Neutral rating on the stock with a TP of INR580 (based on 0.6x FY28E P/BV).

Home loans grew ~4% YoY; non-housing individual segment gained traction

* Loan disbursements in individual home loans grew ~8% YoY, while nonhousing individual disbursements rose 20% YoY. Non-housing commercial disbursements declined ~27% YoY. Builder/project loan disbursements stood at INR8.7b (PY: INR1.6b). Total disbursements grew ~14% YoY to ~INR150b. Repayment rate rose to 17% (PY: 14.6% and PQ: 18.6%).

* Overall loan book was up ~4% YoY and flat QoQ at INR3.22t. Home loans grew ~4% YoY, while non-housing individual book grew ~10% YoY. We expect LICHF to deliver a loan book CAGR of ~7% over FY26-28E.

Valuation and view

* LICHF’s near-term performance will hinge on the trajectory of loan book growth and disbursement momentum, with repayments remaining elevated. While diversification toward higher-yielding non-housing segments remains a focus area for the company, its impact on margin will be an important monitorable. Asset quality remains stable, providing comfort on the benign credit cost outlook.

* We estimate a CAGR of ~7%/3% in advances/PAT over FY26-28E and RoA/RoE of 1.7%/12% by FY28E. With no near-term catalyst, we reiterate our Neutral rating on the stock with a TP of INR580 (based on 0.6x FY28E P/BV).

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