HDFC Securities' research report on LIC Housing Finance
LICHF’s 1QFY21 operating performance was only slightly higher than estimates, but earnings were considerably higher than estimates, on account of lower-than-expected provisions (LLPs and tax). AUM growth was the slowest since FY09, and the moratorium portfolio remained sticky at 25% of loans (77% in the developer book).
While we have increased our earnings, we maintain our REDUCE rating with a target price of Rs 296 (0.9xFY22E), especially after the recent run-up. LICHF faces several challenges in the near term: (1) a sticky moratorium book (particularly in the developer book), (2) inadequate coverage with minuscule Stage I & II provisions and negligible COVID-19 related provisions, and (3) stiff competition from banks, which would constrain growth and NIMs.
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