Buy LIC Housing Finance; target of Rs 440: Motilal Oswal

Motilal Oswal's research report on LIC Housing Finance

LIC Housing Finance (LICHF) posted 3QFY23 PAT of INR4.8b, which declined 37% YoY (but grew 57% QoQ), due to elevated annualized credit costs of ~115bp (PY: ~60bp). NII at INR16b grew 10% YoY/38% QoQ, while PPoP at INR13.6b was flat YoY (but grew 44% QoQ). The 9MFY23 PAT stood at ~INR17b and grew 46% YoY; disbursements were at ~INR481b and grew ~13% YoY in 9MFY23. NIM (reported) at ~2.4% expanded ~60bp QoQ, driven by a ~110bp improvement in yields to ~9.7%. The CoF increased ~30bp QoQ to ~7.4%. This was along expected lines after a one-off in margins in the last quarter. We have cut our FY23E EPS by ~11% to factor in the 9MFY23 performance resulting in higher opex and credit costs for this fiscal year. We remain wary of slippages from restructured loans, which can keep credit costs elevated and also result in interest income reversals in FY24E.

Outlook

In our view, higher interest rates have started dampening the demand for mortgages. We model an advances/PAT CAGR of 11%/26% over FY23-25 for an RoA/RoE of 1.2%/13% in FY25, respectively. Reiterate BUY with a TP of INR440 (premised on 0.8x Sep’24E P/BV).