In the past two months, LIC Housing Finance (down 27 per cent) and PNB Housing Finance
(down 19 per cent) have underperformed the market after reporting weak set of April-June quarter (Q1FY20) earnings. In comparison, the S&P BSE Sensex was down 5 per cent during the same period.
JP Morgan has 'underweight rating' on LIC Housing Finance, given elevated asset quality issues in its high-yield developer book and further increasing non-performing lending (NPL) trends in its loans against property (LAP) book.
“Core growth in the individual mortgage segment is decent, but we await higher competitive intensity from public sector banks (PSBs) that could imply limited pricing power here. Core growth at LIC Housing Finance in the individual segment has fallen off over a period of time, and revival here will be key for us to turn constructive,” the brokerage firm said in a note. The stock was trading below its March 2020 target price of Rs 440 per share.
LIC Housing Finance’s developer & LAP portfolio has been witnessing traction and core individual book has been witnessing a moderation in growth. Long awaited margin uptick is seen but with rise in developer portfolio increases risk of deterioration in asset quality, said analysts at ICICI Securities in their Q1FY20 result update.
PNB Housing Finance remains a material player but analysts at Elara Capital see growth reset over FY20-21E, with margins and asset quality concerns in the near term.
“Additionally, management treading a strict cost control with no branch expansion and hiring for FY20 will impact growth. We see loan book CAGR of 18 per cent over FY19-21E vs 40 per cent over FY17-19. We believe the proposed Rs 2,000 crore capital raise will only aid in lowering leverage rather than as growth capital, with another round expected in FY21,” the brokerage firm said in quarterly update.