LIC Housing Finance Shares Surge 63% in Nine Months; Positive Momentum Expected to Continue

LIC Housing Finance, one of India’s leading housing finance companies, has experienced a significant 63% increase in its shares over the past nine months, reaching a new 52-week high of ₹544 per share. Despite a slow start in the first quarter of CY23, the stock gained momentum in March and is poised to maintain its upward trajectory, according to brokerage firm Sharekhan.

Sharekhan highlights the attractive valuation of LIC Housing Finance, with a price-to-book value (P/BV) ratio of 0.7/0.6x its FY25E/FY26E estimates. Maintaining a ‘buy’ rating on the stock, Sharekhan has revised its target price to ₹555 per share.

The brokerage anticipates double-digit Asset Under Management (AUM) growth for LIC Housing Finance, driven by an upward trend in disbursements, which reached ₹5.1 billion in October 2023. The company’s management expects sustained momentum in disbursements, with the sanction to disbursements ratio projected to surpass the current 80%.

Sharekhan notes the completion of the IT-related transformation that impacted disbursements in Q1FY24. With 84% of the total book dedicated to individual home loans and strong demand in this segment, Sharekhan predicts LIC Housing Finance’s AUM to grow at a CAGR of 11% over FY23–26E.

Despite the normalization of Net Interest Margin (NIM) on a higher Cost of Borrowing (CoB), Sharekhan expects NIM to remain at 2.8% over FY24–26E, higher than the historical range of 2.3-2.5%. The brokerage estimates Pre-Provision Operating Profit (PPoP) to grow at a 16% CAGR over FY23–26E.

LIC Housing Finance has shown an improved Gross Stage 3 (GS-3) ratio, decreasing by 57 basis points YoY to 4.33% by September 2023. The proportion of the individual home loan portfolio, considered of better quality, has risen to 84%, contributing to contained stress levels.

In the quarter ending September, LIC Housing Finance reported a nearly four-fold increase in net profit to ₹1,188 crore, compared to ₹305 crore in the same period last year. Interest income also saw a significant jump to ₹6,707 crore in Q2 FY24 from ₹5,049 crore a year ago.”