LIC Housing Finance Share Price Target; Jefferies Sees Benefit Amid Rising Interest Rates

According to global brokerage firm Jefferies, home loan demand is still robust, and a rate increase of 125/110 bps YTD FY23 might increase spreads for LIC Housing Finance despite rising interest rates given the company’s attractive floating asset/fixed liability profile.

Asset quality problems have probably reached their height, and the proportion of wholesale (higher stress) loans is declining. Slippages from the revised book are expected, but they seem to have already been included in. Reduced borrowing costs could support profit growth even further. Valuations are favourable at 0.9x FY23e BV, the report said. With a target price of ₹510 (₹450), Jefferies has kept its Buy recommendation on LIC Housing Finance shares because it believes the business is better positioned in the face of rising interest rates.

Rate increases of 125/110bps (including a 50bps increase in August) have been made by LIC Housing Finance for new and existing house loans so far in FY23 YTD. Portfolio spreads (back book) might increase to c.2% from 1.87% as of March since there are 96% floating rate loans and 51% fixed rate liabilities. Despite somewhat lower spreads on new loans, this might boost overall spreads. According to the brokerage house, a 10 bps rise in spread could improve EPS by 6%.

Strong housing market momentum should sustain a 15% loan CAGR in the following three years. Due to the modest increase in the LAP book and little fall in the developer book, it was noted that the overall loan growth during the period of FY22–25e may be slightly lower at 13% CAGR.

“The robust momentum in home demand should be advantageous for LIC Housing. With 96% variable rate loans and 50% or more fixed liabilities, LICHF should be able to control spreads better than other HFC competitors. The majority of the stress in the non-housing book has been identified, and asset quality worries are waning, according to Jefferies, which anticipates stage 3 assets to stabilise and credit costs to decline over FY22–25e, resulting in a robust EPS CAGR and c.14% ROE over the same period.

Disclaimer :- The views and recommendations made above are those of individual analysts or broking companies, and not of Ours.
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