LIC Housing Finance hits four-month high ahead of Q1 results

Photo: LIC Housing twitter handle
Shares of LIC Housing Finance hit a four month high of Rs 569 per share, rising 3% on the BSE ahead of April-June quarter (Q1FY19) results on Friday, August 24, 2018.

The stock of housing finance company (HFC) was trading at its highest level since April 17, 2018. It has outperformed the market by surging 21% from its recent low of Rs 471 on May 24, 2018. On comparison, the S&P BSE Sensex was up 4% during the same period.

Despite of an over 20% rally in past three months, the stock has underperformed by falling 12% in past one year, against 23% rise in the benchmark index.

The brokerage firm Motilal Oswal Securities expects LIC Housing Finance’s asset quality is likely remain in Q1FY19 on year on year (YoY) basis. The company is likely to one of the beneficiaries of expected credit loss (ECL) accounting on loans.

“We expect loan growth of 17% YoY, driven primarily by the LAP segment. The share of builder loans is likely to remain at around 5% of overall book. Growth in the retail home loan book would be the key monitorable,” the brokerage firm said in result preview.

“We expect net interest margins or NIMs to improve marginally on a sequential basis although demand in individual loans remains low.  LIC Housing Finance’s growth momentum in the individual loan segment will continue to be a key monitorable, while growth in the non-individual segment could continue to drive loan growth. Credit costs as well as asset quality likely to remain stable sequentially,” Emkay Global Financial Services said in result preview.

LIC Housing Finance remains one of the cheapest stocks in the HFC space but this is largely explained by historic volatility seen in its spreads driven by non-performing lending (NPLs) and slowing growth in core individual mortgage segment.

We believe core loan growth at LICHF should pick up over a 2 year view in turn driven by an upturn in the property market. Build out of high yield developer financing book should provide an offset to any compression in core book thus keeping overall spreads stable, analysts at JP Morgan said in a note.

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