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The LIC Housing Finance fourth quarter performance has market analysts divided down the middle, but most of them prefer to add the stock to the portfolio.
LIC Housing Finance (LICHFL) reported a 17 per cent year-on-year (y-o-y) increase in net profit at ₹694 crore in the fourth quarter March 31, against ₹594 crore in the year-ago period. Net interest income (interest earned minus interest expended) was up 21 per cent at ₹1,201 crore (₹989 crore in the year-ago period).
Motilal Oswal, which maintained its ‘buy’ rating with a target price of ₹580, said: “LICHF continues to grow its loan book at 15 per cent; however, over the last few years, growth has been largely driven by LAP (loan against property) and builder loans.
Over FY15-19, retail home loans grew at 10 per cent CAGR.
“Post the liquidity crisis in September 2018, we believe parentage and credit rating are of paramount importance for NBFCs/HFCs, and LICHFL is well placed to capitalise on it,” it said, and added: “While the growth rate of 15 per cent and stable-to-improving spreads are comforting, the continued increase in GNPA in the individual lending segment is a cause of concern.”
YES Securities, which is sanguine about LICHFL’s ability to deliver steady growth and maintain net interest margin (NIM) at a healthy level, is discomforted by the recent trends in asset quality. However, the company will deliver 15 per cent earnings CAGR and steady return ratios over FY19-21. Though the downside risk for the stock seems protected, asset quality trends in the next two quarters will refine the clear view on the stock, said YES Securities.
Proves ability via NCD issue
The company has successfully raised ₹15,000 crore through NCDs in FY19 amid liquidity stress which shows it can gain market share from its peers which are struggling with the fund crisis, said securities firm Narnolia. “Asset quality has deteriorated sequentially as majority of the slippages were from gross Stage 2 pool; however, we remain cautious owing to current stress environment related to real estate developer,” it added.
The negative surprise on asset quality should keep the stock under check, said HDFC Securities.
Between FY17-19, higher-yielding and riskier non-core segments contributed 45 per cent of incremental AUMs. These non-core segments now form nearly 24 per cent of the book versus 16.4 per cent in FY17. LICHFL has consciously taken on more risk by favouring non-core (project and LAP) segments, as growth and margins in its core business (retail housing loans) compressed, said HDFC Securities, maintaining a ‘neutral’ stance on the stock with a target price of ₹471.
Considering continuous stress in the real estate segment, Narnolia said: “We increase our credit cost estimates and reduce the earnings by 6 per cent in FY20.”
On Wednesday, the stock of LIC Housing Finance closed 1.1 per cent higher at ₹479.15 on the BSE.
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