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LKP Securities
LIC Housing Fin (Buy)
Target: ₹345
CMP: ₹277.65
LIC Housing Finance’s performance was strong in Q1FY21, driven by better NIMs (3.4 per cent) due to finer cost of funds. Provision expenses (₹56.5 crore) stood lower, leading to PAT (₹817.5 crore) growth of 34 per cent y-o-y and 94 per cent sequentially.
As the company is looking for stability rather than growth, the AUM growth stood at 6.1 per cent y-o-y because of lower quarterly disbursement. Sovereign rating has led to reduction in cost of fund which could provide further cushion to NIMs in FY21.
The company maintains adequate liquidity with CRAR of 14 per cent, positive ALM and ample cash in hand of ₹1,300 crore as on FY20. The company’s reported asset quality is in fine fettle with GNPA and NNPA ratio of 2.8 per cent and 1.6 per cent, respectively.
With moderate AUM growth in FY21, we estimate the company’s FY21 and FY22 ROE at 10.7 per cent and 12.2 per cent, respectively. Till date provisioning on moratorium has been lower and though we would have preferred higher provisions, the management suggested that provisions have been arrived at by the ECL method. However, the moratorium (25 per cent of book) may remain a key overhang, although collection efficiency has reached a level of 85 per cent as on September 20.
We believe, the negatives are priced in with ample liquidity position and higher collections.
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