REDUCE on LIC Housing Finance - Potentially elevated provisions ahead - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

While LICHF's operating performance was in line with estimates, (PPOP growth at 1.3/3.4%), earnings were ahead of estimates as provisioning continued to undershoot estimates. Over the years, non-core assets have contributed to a bulk of the portfolio growth, resulting in disproportionate risk (already reflecting in high developer NPAs). Furthermore, the company holds negligible provisions on early-bucket stressed assets. Potentially elevated provisions, coupled with stiff competition from banks in LICHF's core business underpin our REDUCE rating (revised target price of INR 381).

Asset quality concerns remain: Even as collection efficiency improved from ~96% in September to ~98%, on a pro forma basis, GS-III climbed to ~3.7%. Reported individual home loan NPAs were ~1.1% while project NPAs were ~16.2%. GS-II rose to ~7% (+123/563bps) - we believe this is indicative of imminent stress that is yet to flow through. Over the years, non-core segments have contributed to a majority of the loan growth at LICHF, resulting in the company taking disproportionate risk. We continue to expect GNPAs to rise further to 4.2% in FY21E.

Provisions remain below expectations: Provisions clocked a 75.6% sequential rise, but came in 66% below our estimates. Reported GS-III coverage witnessed an optical 450/340bps rise to ~50%. On Stage I and II assets, however, LICHF held negligible provisions. Grossly inadequate coverage on early buckets remains a concern. Consequently, we expect provisions over FY21-23E (0.52%) to be significantly higher than the company's previous run rate (0.25% over FY16-19).

Resurgent growth: In line with the earlier commentary, LICHF witnessed a sharp surge 28/36% YoY/QoQ surge in disbursals to ~INR 169bn, with disbursals in the individual segment growing 50.2/54.3% to INR 160bn (the highest ever). Consequently, AUM growth accelerated further to 7.1/3.2%. We expect AUM growth to accelerate further to 11.4% over FY21-23E.

Shares of LIC HOUSING FINANCE LTD. was last trading in BSE at Rs.448.45 as compared to the previous close of Rs. 441.2. The total number of shares traded during the day was 437310 in over 8571 trades.

The stock hit an intraday high of Rs. 451.1 and intraday low of 428.35. The net turnover during the day was Rs. 193273829.

Source : Equity Bulls

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