Niitailwnds: Provisions,remain low. Improving growth in retail home loans coupled with falling funding costs will
support LICHF’s NII. However, the company continues to maintain low ECL coverage as compared to peers- our key
concern; high leverage poses risk of dilution below book. Inexpensive valuation coupled with improving business environment drive ADD rating; FV of Rs 400 (up from RS 375).
LICHF reported strong earnings (PBT up 18% yoy) on the back of lower provisions (down 60% on a high base);
core PBT was flat yoy. PAT was up 2% yoy, due to a lower tax rate in the base. While loan book was up 5% (on the back of 5% growth in home loans), LICHF reported 22% growth in home loan disbursements in September followed
by 38% growth in October.
LICHF reported stable stage 3 loans at 2.8% qoq. Stage 2 loans declined to 1.3% from 4%- an indication of improvement in collections which likely prompted LICHF to go slow on incremental provisions.The company had reported about 25% moratorium book in 1QFY21 (16% in retail segment and 80% in the developer segment);
LICHF highlighted that its collection efficiency in the non-moratorium book was 96% (up from 90% in 1QFY21), lower
than 99.5% for HDFC.
LICHF’s tier-1 ratio is low at 12.3% with leverage of 12X in March 2020, this is higher than most peers. Recent
relaxation in risk weights on higher-ticket home loans will improve its tier I ratio.
However, the company is close to the regulatory cap of 12X leverage and may hence need to raise capital to support
higher growth. LICHF carries low coverage of 1 bps on stage 1 and 2 loans as compared to 1.6% for HDFC; its overall ECL coverage is 1.3% as compared to 2.6-6% for peers. While recent trends in the real estate sector are encouraging, we remain concerned on its higher retail NPLs (1.7% in 1QFY21) and developer loan NPLs (17.6% in 1QFY21) and believe that LICHF will overtime the need to beef up its coverage.
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