Buy LIC Housing Finance; target of Rs 725: Prabhudas Lilladher

Prabhudas Lilladher's research report on LIC Housing Finance

LICHF saw a good quarter as PAT was a 7.2% beat since (1) NII was 8.5% ahead due to 16bps QoQ increase in NIM driven by reduction in funding cost and (2) provisions were lower due to 28bps QoQ reduction in stage-3 to 2.5%. Reported NIM for FY25 was 2.7% (3.1% in FY24) and despite likely repo cut of 75-100bps company sees NIM for FY26 to range between 2.6-2.8% as PLR would be trimmed only after repo cut translates to lower funding cost. However, we are factoring a NIM of 2.55% in FY26 given increased competition from banks in a falling rate environment. LICHF is aiming for double-digit growth in FY26E; we envisage AUM CAGR of 7.5% over FY25-27E. Asset quality continues to improve and LICHF expects provisions to remain benign in FY26 at 9-15bps (10bps in FY25).

Outlook

As asset quality risks have abated, we slightly increase multiple to 1.0x from 0.9x and roll forward to Mar’27 ABV. We increase TP to Rs 725 from Rs650. Maintain ‘BUY’.

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