LIC Housing Finance Q2 Results Review - Asset Quality Improves But Loan Growth Still Muted: Motilal Oswal

Motilal Oswal Report

LIC Housing Finance Ltd. reported a Q2 FY24 profit after tax of ~Rs 11.9 billion (in line), which grew 290% YoY, driven by healthy net interest income growth (even as Q2 FY23 had the lagged impact of transmission of interest rates) and in-line credit costs.

NII at ~Rs 21.1 billion (in line) rose ~81% YoY in Q2 FY24, while pre-provision operating profit at Rs 19 billion (5% beat) grew 100% YoY (but declined 5% QoQ). Cost-to-income ratio stood at ~12% (previous year: ~22% and previous quarter: ~11%).

Net interest margin (reported), at ~3%, contracted ~15 basis points QoQ in Q2 FY24. As of H1 FY24, reported yields and cost of fund stood at 10% and 7.7%, respectively, leading to spreads of 2.4% (versus Q1 FY24 spreads of 2.5%). We do not believe that NIMs can be sustained at current levels and model a NIM compression (from current levels) for the rest of the fiscal year.

We model NIM of 2.9%/2.7%/2.6% for FY24/FY25/FY26. To factor in the higher NIM (versus earlier expectations) and lower credit costs, we increase our FY24E earnings per share by ~5%. We model an advances/profit after tax compound annual growth rate of 9%/21% over FY23-26E for an return on asset/return on equity of 1.5%/14% in FY26E.

LIC Housing Finance's moderation in yields driven by re-pricing for customer retention and muted loan growth was a dampener despite the asset quality improvement (aided by technical write-offs).

While we hope for the volatility in NIM and expected credit loss provisioning to subside, we still see a favorable risk-reward at 0.7 times September 2025 price/book value.

We reiterate our 'Buy' rating with an unchanged target price of Rs 550 (premised on 0.8 times Sep-25E P/BV).

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