LIC Housing Finance's June-quarter earnings offered little relief to a Street looking for signs of a stronger lending cycle. Even as profit rose and asset quality stayed healthy, brokerages believe the bigger challenge is unfolding beneath the surface —shrinking spreads are making growth increasingly difficult to achieve.
ALSO READ: LIC Housing Finance Q1 Results: Profit Rises 10% Despite Marginal Decline In Total Income
Macquarie and Jefferies see the company entering a more delicate phase, where protecting loan growth could require expanding into higher-yield products and new lending channels, even as funding costs remain elevated and competition refuses to ease.
That balancing act, rather than the quarterly earnings, analysts believe, is emerging as the key monitorable for investors.
Brokerages Decode
Macquarie
- Maintained Neutral with a target price of Rs 600.
- Said net interest margins remained under pressure as borrowing costs rose after three straight quarters of declines.
- Flagged management's willingness to move down the credit curve in search of higher yields, increasing underwriting risk.
- Said gratuity provisions and higher technology investments added to operating expense pressure.
- Believes growth remains clouded by intense competition across the housing finance segment.
Jefferies
- Maintained Hold and revised the target price to Rs 550.
- Said spreads on new loans are running around 65 basis points below the back book amid intense competition.
- Noted management is shifting focus towards Loan Against Property (LAP) and Lease Rental Discounting (LRD) to support growth.
- Said assignment and co-lending channels are expected to be launched from the second quarter.
- Believes the stock's valuation of 0.6x FY27 estimated book value offers downside support.
LIC Housing Finance Q1 Show
LIC Housing Finance's consolidated net profit increased 10% year-on-year (YoY) to Rs 1,499 crore, even as total income declined 1.4% to Rs 7,086 crore.
The operating picture was less encouraging. Net interest margins narrowed to 2.58% from 2.68% a year ago as slower AUM growth, softer lending yields and a higher cost of funds weighed on profitability. The quarter also missed expectations at the net interest income and pre-provision operating profit levels.
Loan disbursements rose 15% YoY but fell 29% sequentially to Rs 15,000 crore, while assets under management grew a modest 4% to Rs 3.1 lakh crore.
One area that continued to stand out was asset quality. Gross NPAs remained contained at 2.14%, while net NPAs stood at 1.12%. Recoveries from asset reconstruction companies also resulted in negative provisions during the quarter.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.