Analyst Corner: ‘Add’ rating on LIC Housing Finance with FV of Rs 400

By: |
November 14, 2020 8:52 AM

Niitailwnds: Provisions,remain low. Improving growth in retail home loans coupled with falling funding costs will support LICHF’s NII

LICHF’s tier-1 ratio is low at 12.3% with leverage of 12X in March 2020, this is higher than most peers.

Niitailwnds: Provisions,remain low. Improving growth in retail home loans coupled with falling funding costs will
support LICHF’s NII. However, the company continues to maintain low ECL coverage as compared to peers- our key
concern; high leverage poses risk of dilution below book. Inexpensive valuation coupled with improving business environment drive ADD rating; FV of Rs 400 (up from RS 375).

LICHF reported strong earnings (PBT up 18% yoy) on the back of lower provisions (down 60% on a high base);
core PBT was flat yoy. PAT was up 2% yoy, due to a lower tax rate in the base. While loan book was up 5% (on the back of 5% growth in home loans), LICHF reported 22% growth in home loan disbursements in September followed
by 38% growth in October.

LICHF reported stable stage 3 loans at 2.8% qoq. Stage 2 loans declined to 1.3% from 4%- an indication of improvement in collections which likely prompted LICHF to go slow on incremental provisions.The company had reported about 25% moratorium book in 1QFY21 (16% in retail segment and 80% in the developer segment);
LICHF highlighted that its collection efficiency in the non-moratorium book was 96% (up from 90% in 1QFY21), lower
than 99.5% for HDFC.

LICHF’s tier-1 ratio is low at 12.3% with leverage of 12X in March 2020, this is higher than most peers. Recent
relaxation in risk weights on higher-ticket home loans will improve its tier I ratio.

However, the company is close to the regulatory cap of 12X leverage and may hence need to raise capital to support
higher growth. LICHF carries low coverage of 1 bps on stage 1 and 2 loans as compared to 1.6% for HDFC; its overall ECL coverage is 1.3% as compared to 2.6-6% for peers. While recent trends in the real estate sector are encouraging, we remain concerned on its higher retail NPLs (1.7% in 1QFY21) and developer loan NPLs (17.6% in 1QFY21) and believe that LICHF will overtime the need to beef up its coverage.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Sensex closes above 45k, Nifty ends at 13,258 on RBI boost
2Interest rate-sensitive stocks gain after RBI policy review
3Burger King IPO subscribed over 156 times at close; grey market premium rises over 63%