Brokerages downgrade LIC Housing post weak Q1 results, see limited stock upside

So far this year, the stock of this housing financier jumped over 27 percent, outperforming benchmark Nifty 50's 10 percent rise

Shares of LIC Housing Finance saw a partial recovery, rising 2 percent to Rs 700 per share on August 6 after plummeting over 8 percent the previous day following the company’s weak results for the June-ended quarter (Q1FY25). The disappointing performance was due to slower loan growth and reduced margins.

Brokerages were dissatisfied with the Q1 results and saw limited upside potential despite the stock's lower valuations.

HSBC downgraded LIC Housing to 'reduce' and lowered the target price to Rs 590 per share from Rs 740, citing ongoing competition that is likely to keep loan growth and margins under pressure.

Similarly, Nomura downgraded LIC Housing to 'neutral' from 'buy' and reduced the target price to Rs 725 per share from Rs 875, noting that low earnings visibility may temper the stock's growth outlook.

ALSO READ: LIC Housing Finance Q1 Results: Net profit down 1.8% YoY at Rs 1,300 crore

Since 99 percent of LIC Housing's loan book has floating interest rates, any rate cuts would decrease the interest earned on these loans, while borrowing costs would remain unchanged due to their longer tenure. This would negatively impact its margins, according to Nomura analysts.

LIC Housing's standalone net profit dropped nearly 2 percent year-on-year (YoY) to Rs 1,300 crore in Q1FY25, while net interest income fell 10 percent YoY to Rs 1,989 crore. Net interest margin also decreased to 2.76 percent in Q1FY25 compared to 3.21 percent in the same period last year, due to lower recoveries from non-performing assets (NPAs).

The overall loan book grew by a modest 4 percent YoY in the June-ended quarter. Home loans increased by 7 percent YoY, but the developer loan book declined by 51 percent YoY. The management mentioned ongoing pressure to reprice loans at lower interest rates to retain customers.

Despite a healthy 19 percent YoY growth in disbursements, AUM growth was subdued at 4.4 percent YoY due to higher repayment levels. The company has maintained its double-digit AUM growth guidance for FY25.

So far this year, the stock of this housing financier jumped over 27 percent, outperforming benchmark Nifty 50's 10 percent rise.

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