After the initial euphoria of three per cent rally on Friday despite results missing Street expectations, the LIC Housing Finance (LICHF) stock scaled to its 52-week high only to close lower by a per cent on Monday. While the management remains optimistic on loan growth, June quarter (Q1) results suggest some signs of pressure.
First, the core mortgage (home loan) book or retail loan portfolio at Rs 1,11,829 crore (almost 88 per cent of total loans of LICHF) grew only nine per cent year-on-year (y-o-y) in Q1, compared to 12-14 per cent on average in the four quarters of FY16. Likewise, loan yields at 10.72 per cent, too, came under pressure because of conversion of low-priced fixed-rate loans into floating rate loans, and partly due to competition. But, analysts say it may be early to call these as signs of caution.
Analysts at Nomura say while the core home loan growth slowed, disbursement is picking up and less number of customers are prepaying loans. For instance, home-loan disbursements grew eight per cent in Q1 compared to two-four per cent on average in the four quarters of FY16.
Changing loan-mix is also good for LICHF. The loan book, which was heavily in favour of individual consumers (92.7 per cent in Q1FY16) is more diversified, with individual consumers accounting for 88 per cent in Q1FY17; the rest comes from loan against property (9.3 per cent of loan book) and developer loans (2.9 per cent). On the back of lower base, these segments are growing faster than the individual consumer loan segment. And, although perceived as slightly riskier, their share is much lower in the case of LICHF compared to peers.
Higher share of these two segments helped net interest margin (NIM), which improved 20 basis points (bps) y-o-y to 2.61 per cent. (NIM=interest received - interest expenses/average earning assets.) This was despite incremental yield on loans declining 12 bps y-o-y in Q1 to 10.68 per cent, because cost of funds, which fell 30 bps y-o-y to 9.08 per cent, did the trick. LICHF was also able to borrow funds using low-cost instruments such as non-convertible debentures (cheaper by 50-100 bps compared to borrowings from banks), which supported NIM.
That said, net profit at Rs 408 crore grew only seven per cent, LICHF's lowest growth in the recent quarters, thanks to higher provisioning (Rs 116.5 crore in Q1FY17 versus Rs 44.3 crore in Q1FY16). Terming this slowdown in net profit growth as a one-off, 15 out of 16 analysts polled on Bloomberg after results maintain 'buy' recommendation on the company's stock.