A positive consumer sentiment, in the words of its MD and CEO, might have helped State-run LIC Housing Finance post a 23-per cent growth in net profits for the September quarter of FY23, but analysts aren’t in a mood to cheer. After tumbling almost 12.8 per cent ₹349.40, the stock recovered marginally to close at ₹366.90 on Tuesday, down 8.37 per cent over the previous day’s close on the BSE.

“Dismal show,” is how YES Securities described the company’s financial performance in its daily report. “The big negative was a sharp NIM decline (from 2.5 per cent to 1.8 per cent) versus expectation of improvement — the NII miss itself was ₹6 billion (₹600 crore).” Net interest income for the quarter was at ₹1,163 crore (₹1,173 crore).

According to ICICI Securities, earnings were significantly below consensus estimate; “double whammy with shrinkage in margins and rise in credit cost”. Credit cost at ₹565 crore (about 90 basis points) was higher than past four quarters’ run-rate of about 60 bps. The higher credit cost also included a ₹190-crore loan write-off and the company also raised ECL coverage, which stood at ₹6,522 crore, with the provision coverage ratio at 44 per cent as of September 30.

Gaurav Jani – Research Analyst, Prabhudas Lilladher Pvt Ltd, said the performance is weak on all fronts such as NII, provisions and PAT. “Opex was higher at ₹260 crore (against PL expectation of ₹210 crore) driven by employees. PPoP was lower at ₹750 crore (PLe ₹1,460 crore) led by lower NII and higher opex,” he added.

LIC Housing Finance is grappling with higher cost of funds (up at 7.1 per cent from 6.8 per cent a year ago) due to successive rate hikes by the RBI. ICICI Securities also said that q-o-q decline in margins could be due to interest reversal arising from “higher slippages from restructured pool of ₹3,000 crore as of Q1-FY23-end or higher discounts offered to customers to contain balance transfers.”

YES Securities added that NIM contracted on accounting of ₹270-crore NPV loss due to conversion of about ₹9,000-crore home-loan pool (corporate employee loans with Nil NPLs) to floating rate (rate reduction versus prevailing fixed rate) — floating rate loans share increased from 96 per cent to 98 per cent q-o-q.

“With growth on expected lines, the NIM trajectory would be keenly watched. Q3 NIM improvement is a given with 115-bp rate hike coming into play and assuming there is no significant NPV loss entailing loan repricing,” said YES Securities, which will review its current Buy rating after concall.

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