The September quarter earnings of the current financial year (Q2FY23) of LIC Housing Finance disappointed investors.
On November 1, the company reported a 67% quarter-on-quarter (QoQ) decline in Q2FY23 standalone net profit at ₹305 crore. On a year-on-year (YoY) basis, however, the profit figure was 23% up.
Total standalone revenue from operations for Q2FY23 stood at ₹5,085.54 crore, down 4% QoQ but up 8% YoY.
After the release of Q2 numbers on November 1, the stock fell 8.37% in the next trading session.
Brokerages remain largely positive
Brokerage firm Motilal Oswal Financial Services has a buy call on the stock with a target price of ₹460. It has cut its FY23 and FY24 EPS (earnings per share) estimates by nearly 13% and 6%, respectively, to factor in higher opex, lower NII (net interest income), and elevated credit costs in FY23.
“We remain wary of slippages from restructured loans, which can keep credit costs elevated and also result in interest income reversals in the second half of the current financial year (H2FY23),” said Motilal Oswal.
The brokerage firm said LIC Housing Finance has strong moats in both retail mortgages and on the liability side.
However, Motilal Oswal is sceptical about the company’s ability to transmit the higher cost of borrowings to its customers successfully.
The brokerage firm highlighted that the company has had to resort to several retention strategies despite banks and the other large HFC peer transmitting the entire repo rate increase to their customers. Motilal Oswal believes this could potentially lead to margins structurally stabilizing around 2.25%.
Motilal expects an RoA (return on assets) and RoE (return on equity) of 1.2% and 13%, respectively, in FY24.
“(a) Slippages from the restructured pool leading to higher credit costs, (b) higher interest rates, which can result in a moderation in demand and potentially higher delinquencies, and (c) further rise in CoF adversely impacting the NIM are the key downside risks,” said Motilal Oswal.
Brokerage firm JM Financial expects LIC Housing Finance to deliver a loan CAGR of 12% over FY22-24E. The brokerage firm, however, reduced its earnings estimate for FY23E and FY24E by 6% and 7%, respectively, on account of a slower NIM uptick.
JM Financial, too, has a buy call on the stock with a target price of ₹470.
Kotak Institutional Equities (Kotak Securities) has maintained a buy call on the stock but cut the target price to ₹550 from ₹600.
“LIC Housing Finance disappointed in Q2FY23 on multiple counts, with trends in margins challenging to triangulate. Asset quality performance is improving due to upgrades in the retail business even as the developer book reported a rise in NPLs. We derive comfort from continued housing demand and rapid rate transmission in home loans that will eventually benefit LIC Housing Finance albeit with a lag and undemanding valuations,” said Kotak Institutional Equities.
“Our revision in estimates (core PBT down 2-6%) derives comfort on smooth rate transmission in home loans across the sector that will eventually benefit LIC Housing Finance, even as episodic factors temper quality performance,” said Kotak.
Nuvama Wealth Management Limited (formerly Edelweiss Securities), on the other hand, has a ‘hold’ call on the stock with a target price of ₹365.
“Although management is guiding to a full margins recovery in Q3FY23, with its frequent guidance misses, a wait-and-watch approach would be prudent. High volatility in quarterly earnings and a high leverage ratio make us reiterate a hold,” said the brokerage firm.
According to a MintGenie poll, an average of 30 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.
