LIC Housing Finance’s shares saw a 2 percent increase in morning trading on November 2, following the release of its second-quarter results for the fiscal year 2024 (Q2FY24), which exceeded market expectations. Analysts are expressing optimism about the stock as it showed growth across key parameters, including profit, net interest income (NII), and margin metrics.
Global brokerage firm Citi issued a “buy” rating for LIC Housing Finance, increasing the target price to Rs 535 per share from Rs 490. The company’s Q2 performance benefited from stable net interest margins (NIMs) at 3 percent, resulting in a 15 percent beat on pre-provision operating profit.
Jefferies also recommended a “buy” stance with a target price of Rs 505 per share, citing that LIC Housing Finance’s profit exceeded their estimates, primarily due to positive margin surprises.
The lender’s NIMs, a critical measure of profitability, expanded to 3.04 percent from 1.78 percent in the same period the previous year, primarily driven by well-maintained credit costs.
Despite technical write-offs of Rs 925 crore during the quarter, credit costs remained under control at 60 basis points (bps). The majority of write-offs in LIC Housing Finance came from the developer or project loans segment.
The company’s net profit surged nearly four-fold year-on-year to Rs 1,188 crore, and NII showed a remarkable 83 percent year-on-year increase, reaching Rs 2,107 crore in Q2FY24.
Improvement in Asset Quality
LIC Housing Finance’s non-performing assets (NPAs) improved from 4.9 percent to 4.3 percent compared to the same period the previous year. Net NPAs also declined, from 2.83 percent to 2.59 percent.
The improvement was attributed to a reduction in stage-3 exposed assets due to higher write-offs, as reported by analysts at Motilal Oswal, who also recommended a “buy” rating on the stock after the results.
Management noted positive trends during the ongoing festival season, which is expected to help the company maintain its growth trajectory for the remainder of this fiscal year.
Muted Loan Growth
However, Jefferies analysts highlighted subdued loan growth in the quarter due to lower disbursements on a year-on-year basis and higher rundown rates. LIC Housing Finance’s loan portfolio grew by a modest 6 percent year-on-year in Q2FY24, with home loans growing by 8 percent during the same period.
Analysts expressed interest in understanding the management’s outlook on individual loan growth and noted that commentary on the company’s plans to scale up disbursements, as well as guidance on NIM and credit costs for FY24, would be important.
As of 9:30 am, the stock was trading at Rs 452.70 on the BSE, marking a 1.10 percent decrease from the previous close.
In the past week, LIC Housing Finance has gained 2 percent, outperforming the benchmark Sensex, which saw a 0.7 percent rise.
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