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

Prabhudas Lilladher's research report on LIC Housing Finance

LICHF saw a weak quarter as (1) NII missed PLe by 3.9% since NIM at 2.64% was lower to PLe by 10bps (2) disbursals at Rs131bn were 6.2% lesser and (3) stage-3 saw a 15bps QoQ blip leading to higher provisions at 25bps (PLe 18bps). Disbursal growth was muted due to slower pass thru of rate cuts compared to banks and lower demand post repo cuts. While company maintained its double digit AuM growth guidance for FY26, we are cautious and factoring 7.2% AuM CAGR over FY25-27E since (1) competition from banks would increase in a benign interest rate environment and (2) preference is towards profitability over growth. While asset quality saw a blip for Q1FY26, it seems transitory as most of the stress related risks have abated. Company expects provisions to remain benign in FY26 at 9-15bps (10bps in FY25).

Outlook

Valuation remains attractive at 0.8x; we keep multiple at 1.0x on FY27 ABV and maintain TP at Rs725. Retain ‘BUY’.