LIC Housing Finance's (LICHF) Q4FY21 earnings reflected catch-up on stress recognition, specific loan loss and covid provisioning leading to credit cost of 180bps (compared to 20bps in 9MFY21). We were factoring this in, though consensus was not, and earnings were in-line with our expectations but much below consensus. Second covid wave disruption will keep stress pool and credit cost elevated through FY22. Stupendous momentum in home loan disbursements continued - more than doubled YoY in Q4 with 18% growth for full year FY21 grabbing the market share. As highlighted by us earlier that sustenance of robust growth momentum and provisioning risk buffer would advance the fund raising need, the Board has approved preferential issue to LIC to shore up capital buffer by >150bps. Factoring in capital infusion, revised growth and credit quality outlook, we revise our target price to Rs543 (earlier: Rs420, assigning 1.1x FY23E ABV). Maintain ADD. Key risks: 1) Delayed resolution of developer portfolio stress; and 2) competitive pressure on NIMs.
- Stress recognition settles higher than expectations: Stage-3 assets have risen from 2.68% to 4.12% - of this individual home loan stage-3 has risen from 1.22% to 1.89% QoQ, individual non-home loan from <4% to >9%, while stress in developer portfolio rose marginally (16.2% to 18%). Stage-2 assets moderated a bit QoQ from 6.95% to 6.19%. Stage-1 assets, thereby, were down 70bps to 89.7%. It has restructured Rs30bn (1.3% of loans) of which Rs23.6bn (93 accounts) is in corporate developer segment (15% of the developer book). Stress recognition has settled higher than the management's earlier indication of pro-forma stage-3 being another 100bps (over reported stage-3 of 2.68%) and anticipated restructuring clarity to be another 50-100bps. Due to disruption by second covid wave, we believe, stress pool and restructuring will further go up from FY21 levels. Collection efficiency has remained steady at 98% in March (98% in Dec). The management indicated that collection efficiency for standard pool has sustained around 98% in April as well as May.
- Provisioning catch-up visible for first covid wave disruption; second wave impact will reflect in FY22: True to our hypothesis that provisioning buffer of 1.3% seems meagre on stress pool (stage 2/3) at 9.63%, Q4FY21 witnessed a catch up on the same. It created incremental Rs3bn of covid buffer and Rs8bn of impairment provisioning. As against our expectations of Rs9bn of provisioning, it came in further higher at Rs9.8bn - 180bps credit cost compared to 20bps for 9MFY21. Compared to near zero provisioning on stage-1 and stage-2, it now carries provisioning of Rs1.54bn (6bps on stage-1 and 26bps on stage-2). It has also created incremental provisioning of Rs8.7bn towards stage-3 assets, though coverage on stage-3 is down QoQ from 50% to 40%. Besides this, Rs2.05bn has been transferred to impairment reserves as impairment allowance under Ind-AS is lower than IRAC provisioning requirement. Cumulatively, it suggests provisioning of 1.8% on overall stress pool of more than 10%. We expect requirement for higher provisioning in FY22 as well and are building in credit cost of 1.0%/0.7% for
- Stupendous growth momentum continues, grabbing market share: It is changing gears towards high growth path through competitive rate offerings and positive buyer sentiments due to stable to discounted property prices. There was stupendous uptick in disbursements - up 97% YoY to Rs223.6bn. Of this, individual loan disbursements have more than doubled to Rs190bn (up 20% QoQ) while projects loans were Rs12bn (compared to Rs18bn in 9MFY21). With this, it ended FY21 with 18% growth in individual loan disbursements and overall disbursements. Overall loan portfolio grew 10% YoY (5% QoQ) to Rs2.32trn. Few specific nuances lend comfort on sustainability and better risk profile: 1) Typical profile is superior quality customer in prime CIBIL score; 2) affordable housing constitute 34% of incremental disbursement; 3) new innovative launches - Griha Varishtha and digitisation aid growth. It continues to be relatively cautious on LAP / developer loans. On a higher base, we expect disbursement growth of 14%/35% over FY22E/23E and loan growth of 12-15% during the same period.
- NIMs improved despite interest reversals, should subside from hereon: NIMs have risen by 30bps QoQ to 2.66% primarily benefiting from Q4FY21 incremental funding cost being lower at 5.15% (full year at 5.62%) and outstanding borrowing cost declining 70bps QoQ to 6.7%. Due to interest de-recognition on stress pool and 'interest on interest' reversals, yields declined more than 30bps. Net interest income with 33% YoY growth at Rs15bn came much ahead of expectations of Rs13bn. We believe benefits of lower borrowing cost are now appropriately reflecting with repricing. However, the benefit is being passed on to prime customers for growth. Volatility, due to rising stress pool, will continue in H1FY22 but for full year FY22 we expect NIMs to stabilise at 2.3-2.4%.
- Preferential issue to LIC will shore up capital buffer: Board has approved preferential issue of 45.4mn shares to LIC - post which LIC's stake is expected to go up to 48.5% (from 40.3%). It has reported 14.5% CAR for H1FY21 (tier-1 at 13%) - this is closer to minimum CAR requirement for HFCs at 14% by FY21 and 15% by FY22 (tier-I at any point of time, shall not be less than 10%). The infusion suggests >150bps boost to CAR and provides scope to further leverage and expand the balance sheet. During Q4FY21, it has raised Rs8bn towards tier-II bonds (Rs18bn raised in full year FY21) and there is further headroom available for raising tier-2 bonds. It will evaluate further capital infusion at an appropriate time depending on growth, asset quality outlook and market sentiments.
Shares of LIC HOUSING FINANCE LTD. was last trading in BSE at Rs.494.9 as compared to the previous close of Rs. 521.75. The total number of shares traded during the day was 834896 in over 18048 trades.
The stock hit an intraday high of Rs. 517 and intraday low of 492.7. The net turnover during the day was Rs. 420596754.