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Motilal Oswal Report
LIC Housing Finance Ltd. reported Q1 FY24 profit after tax of ~Rs 13.2 billion (~34% beat), which grew 43% YoY, driven by a healthy net interest income growth and lower credit costs.
NII at ~Rs 22 billion (22% beat) grew 37% YoY, while pre-provision operating profit at Rs 20 billion (23% beat) grew 39% YoY. Cost-income ratio moderated to ~11% (previous year: ~12%), driven by a sharp NII growth.
Q1 FY24 net interest margin (reported) at ~3.2% expanded ~30 bp QoQ, driven by a ~15 bp improvement in (reported) yields to ~10.2%. The cost of fund was flat QoQ at ~7.6%. We do not believe that NIMs can be sustained at current levels and model NIM compression (from current levels) for the rest of the fiscal year.
The management shared that the ongoing IT platform transformation led to technical glitches, which resulted in-
muted disbursements and
deterioration in gross stage-III, due to the inability to present National Automated Clearing House mandates.
We model NIM of 2.8%/2.7% in FY24/FY25. To factor in the margin expansion reported in Q1 FY24, we increase our FY24/FY25 earnings per share estimate by ~9%/6%. We model an advances/profit after tax compound annual growth rate of 9%/26% over FY23-25 for return on asset/return on equity of 1.5%/14% in FY25.
Muted disbursements and asset quality deterioration was a dampener despite the historically high NIM levels, reported by LIC Housing Finance.
While we hope for the volatility in NIM and expected credit loss provisioning to subside, we still see risk reward favorable at 0.7 times FY25 price/book value.
We reiterate our 'Buy' rating with a target price of Rs 500 (premised on 0.8 times FY25E P/BV).
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