The brokerage expects the sharp surge in credit costs to stay for the next 4-6 quarters.
Emkay Global has given a hold rating to LIC Housing Finance with a 12-month target price of Rs 254. The share price moved up by 0.29 per cent from its previous close of Rs 273.10. The stock's last traded price is Rs 273.90.
LIC Housing Finance’s disbursements declined by around 40 per cent year on year (-14 per cent quarter on quarter), dragged by a ~34 per cent year on year fall (-11 per cent quarter on quarter) in individual housing, whereas project financing fell ~80 per cent year on year (-56 per cent quarter on quarter). Overall loan book growth fell to a multi-quarter low of +8.2 per cent year on year (+2.4 per cent quarter on quarter) to Rs 2106 billion, with merely two weeks of lockdown in March.
According to the brokerage, asset quality continued to disappoint where Stage 3 assets rose to 2.86 per cent against 2.73 per cent last quarter. Credit costs remained low at 13bps as the NBFC has not made any Covid19- specific provisions. Also, about 40 per cent of individual home loans are for under -construction properties, while 25 per cent of projects are under moratorium, which raises the brokerage concerns.
Investment Rationale
Overall loan book growth slipped to a multi-quarter low of 8.2 per cent year on year to Rs 2.1 trillion, of which individual loans grew 8.1 per cent year on year, whereas developer loans grew 8.9 per cent year on year. Share of retail home loans was flat sequentially at around 76.9 per cent, whereas Developer Finance share stood at 6.8 per cent. The housing finance industry has been competitive recently, with aggressive efforts by large banks and newly-formed HFCs.
The brokerage expects LIC Housing Finance with limited or no pricing power to continue seeing compressed spreads (120bps) and margins (about 240-250bps) in FY20-22E. Considering the current turmoil in the developer segment, i.e., liquidity crunch and the slowdown in sales, the brokerage expects the sharp surge in credit costs to stay for the next 4-6 quarters.
Emkay Global has been highlighting a cautious view on the company’s asset-quality profile for some time, and says this seems to be reflected in results. Though the housing loan book is safer than asset-backed loans in current turbulent times, the brokerage remains concerned over the pressure emerging on spreads and margins after external benchmarked floating-rate loans by banks. It reiterates a hold rating with a revised target price of Rs 254 (Rs 218 previously), corresponding to ~0.8 times FY22E P/Adj. Book (0.7 times earlier).
The key risk is a big fiscal push toward the revival of real-estate activity.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 4935.20 crore, down -1.40 per cent from last quarter sales of Rs 5005.36 crore and up 5.76 per cent from last year's same quarter sales of Rs 4666.48 crore. The company reported net profit after tax of Rs 424.31 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 40.31 per cent stake in the company as of March 2020, while FIIs held 32.32 per cent, DIIs 14 per cent and public & others 13.37 per cent.
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