LIC Housing Finance (LICHF) posted Q4-FY23 PAT of about ₹1,180 crore (+146 per cent QoQ/+5.5 per cent YoY), delivering about 44 per cent beat on consensus estimate. This was driven by sequentially-lower credit costs and margin expansion. Disbursement was flat sequentially/down YoY, on weak disbursements in home loans, offset by strong project-loan momentum.
While the headline GS3 (gross stage 3) number improved to about 4.4 per cent, lower stage 3 provision coverage ratio (PCR) resulted in NS3 rising by 10bps QoQ to about 2.5 per cent. Stage 2 assets saw a significant rise of 133bps QoQ to 5.25 per cent due to certain customers making lower payments on account of increase in EMI as rates rose. Management indicated that there was some technical problem which has already been resolved during Q1FY24. Stage 2 assets are thus expected to revert to their steady state. The restructured book currently stands at ₹748 crore3, with most of it expected to be out of moratorium in Q1FY24.
We assume coverage on LICHF with a Buy and Mar-24 target price of ₹425/share, valuing the company using the excess return on equity (ERE) method.
Key risks: Asset quality shocks in the project finance book; weak momentum in Individual Loans.