Should you buy LIC Housing Finance post Q1 nos? Here's what analysts say

"We have been cautious on the company’s asset-quality profile for some time," said analysts with Emkay Global Financial Services.
Shares of LIC Housing Finance were trading flat with a positive bias in the afternoon deals on the BSE on Wednesday. The stock had settled over 8 per cent higher on Tuesday following its June quarter (Q1FY21) result announcement. 

For the quarter under review, LIC Housing Finance's profit before tax (PBT) rose 21 per cent to Rs 1,017.67 crore from Rs 840.89 crore in Q1FY20 while the net profit climbed 34 per cent to Rs 817.48 crore against Rs 610.68 crore in the year-ago period. 

Further, its net interest income (NII) rose marginally to Rs 1,220.61 crore in Q1FY21 from Rs 1,181.86 crore in Q1FY20. The net interest margin (NIM) declined to 2.32 per cent from 2.41 per cent for the same period in the previous year.

The company said in a statement that due to the nationwide lockdown, there was a significant impact on business during the quarter. However, with the gradual opening up of the economy, business activity began improving, especially since June. READ MORE

What brokerages say after June quarter result

Analysts with Edelweiss Securities note that as much as 77 per cent moratorium in developer book and 36 per cent of loan against property (LAP) in moratorium need monitoring given momentous challenges to the real estate sector. 

"We ascribe no major benefit of the expected easing to core spreads as prime mortgage rates are likely to follow the marginal sector price-setter SBI’s MCLR—downwards and swiftly," the brokerage said. It has a "BUY" rating on the stock with the target price of Rs 510 (1.3x FY22E P/BV).

The brokerage further says that the reduction in wholesale loan exposure and reversal of cyclical fortunes will be triggers for an upward revision in its target multiple and the developer portfolio stress remains the key risk to watch out for.

Echoing similar views, Shweta Daptardar, an analyst with Prabhudas Lilladher, said, "We would prefer to closely monitor the moratorium book falling on track before riding the hope wave of anticipated asset quality improvement. As economic challenges stand pertinent, we maintain high order credit costs (35-56 basis points) and 3-3.5 per cent non-performing assets (NPAs) over FY21-22E".

The brokerage has maintained a "REDUCE" rating on the stock with low quartile return on equity (RoE) / return on assets (RoA) at 11-13 per cent / 0.9-1.0 per cent over FY22-23.

Emkay Global Financial Services, on the other hand, has a "HOLD" rating on the stock with the target price of Rs 274.

"We have been cautious on the company’s asset-quality profile for some time, and we remain so due to inadequate provisioning. Though the housing loan book is safer than asset-backed loans in current times, we remain concerned about the pressure emerging on spreads and margins on the introduction of external benchmark-linked floating rate loans by banks," the brokerage said in a result review note.  

"We keep our estimates largely unchanged and reiterate Hold/EW in Emkay Alpha Portfolio (EAP), but raise the target price to Rs 274 from Rs 254 due to the rollover to September'22E, corresponding to nearly 0.7x Sep’22E P/adjusted Book. The key risk is a big fiscal push by the government for reviving of real-estate activity," the brokerage added. 

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