REDUCE on LIC Housing Finance - Tread with caution - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

LICHF, like most lenders, saw a sharp rise in collection efficiency, which is unsurprising. However, we expect GNPAs to rise to 3.8% in FY21E. It has received enquiries for restructuring, amounting to ~3-4% of loans. While we have reduced our LLP estimates, we continue to believe that the company is likely to see a significant rise in provisions in the near term. Coupled with our belief that the company would face competitive headwinds on the growth and margins fronts, this drives our REDUCE rating (target price of Rs 341).

Asset quality: Adjusted for the impact of the recent SC order, GS III was ~3% (+60/15bps YoY/QoQ). Collection efficiency rose sharply, reaching 96% in September. GS II optically dipped 70.7/66.2% to Rs 28.2bn (1.32%). Within its developer portfolio, the value of loans for which restructuring enquiries were received, was between 28-37%. This segment will continue to weigh down on asset quality. We expect GNPAs to average ~4% over FY21-23E.

Provisions rose 82.5% QoQ to Rs 1bn (-63.4% YoY). The total COVID-19 provisions were just ~9bps of AUM and Stage III coverage was 46.6%. If actual restructuring were to equal the quantum for which enquiries were received, LICHF would need to make 35bps of restructuring-related provisions as it holds negligible Stage I & II provisions. We have lowered our LLP estimates to ~0.5% over FY21-23E, but they remain conservative.

Overall AUM growth continued to slow, reaching 5.1%, the slowest in at least the past 10 years, while disbursals rebounded sequentially (3.5x, +2.2% YoY). The management indicated that disbursals grew 38% YoY in October and expects disbursals to grow by 9-10% YoY in 3QFY21. Project loan disbursals grew 80.4/405% YoY/QoQ and constituted 7.2% of overall disbursals. We build in a loan CAGR of ~9.3% over FY21-23E.

Borrowings: While NCDs constituted the largest source of borrowings at 59.9%, their share continued to decline (-1176/209bps), and that of bank borrowings continued to rise (+271/64bps). The management indicated that LICHF was looking to raise equity capital and that it could raise Tier II capital to meet regulatory capital requirements if the need arose.

Shares of LIC HOUSING FINANCE LTD. was last trading in BSE at Rs.314.85 as compared to the previous close of Rs. 315.3. The total number of shares traded during the day was 470767 in over 12096 trades.

The stock hit an intraday high of Rs. 320.7 and intraday low of 312.55. The net turnover during the day was Rs. 149451145.

Source : Equity Bulls

Keywords