LIC Housing Finance gains on robust Q2 numbers. Should you buy?

Analysts remain upbeat on LIC Housing Finance as growth is visible on all fronts — profit, net interest income and margin parameters

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LIC Housing Finance shares traded 2 percent higher on November 2 morning, a day after the company’s second-quarter results (Q2FY24) surpassed Street estimates. Analysts remain upbeat on the stock, as growth was visible on all fronts – profit, net interest income (NII) as well as margin parameters.

Global brokerage firm Citi issued a “buy” rating for LIC Housing, raising target price to Rs 535 a share from Rs 490. The company’s second quarter performance was supported by steady net interest margins (NIMs) at 3 percent, which drove pre-provision operating profit beat of 15 percent.

Jefferies drew a similar stance, sharing a “buy” call on the counter, with a target price of Rs 505 a share. “LIC Housing’s profit was ahead of our estimates as margins surprised positively,” they wrote in a post-result analysis.

ALSO READ: Q2 Earnings Review: The bigger they are, the harder they stall?

LIC Housing’s NIMs, a key measure of profitability, expanded to 3.04 percent from 1.78 percent in the year-ago period led by stable credit costs.

Credit costs were well-contained at 60 basis points (bps), analysts said, despite technical write-offs of Rs 925 crore during the quarter.

A write-off is when a financial institution does not expect to recover a loan. Majority of LIC Housing’s write-offs came from developer or project loans segment.

The company’s net profit jumped nearly four-fold on-year to Rs 1,188 crore, whereas net interest income (NII) zoomed 83 percent on-year to Rs 2,107 crore in Q2FY24.

Asset quality improves

The lender’s non-performing assets (NPAs) improved to 4.3 percent from 4.9 percent in the year-ago period. Net NPA declined to 2.59 percent from 2.83 percent.

This improvement was led by a decline in stage-3 exposed assets due to higher write-offs, analysts at Motilal Oswal said in a note. The brokerage firm shared a “buy” call on the counter post results.

The management said it was seeing positive trends during the ongoing festival season, which should help the company maintain the growth trajectory in the remaining quarters of this fiscal year.

ALSO READ: Q2 Earnings review: The worst performing private bank stock of October has a bad loans hangover

Muted loan growth

Analysts at Jefferies, however, flagged muted loan growth during the quarter due to lower disbursements on year-on-year (YoY) basis and higher rundown rates.

LIC Housing’s loan portfolio grew by a modest 6 percent on-year in Q2FY24. Out of which, home loans grew at 8 percent during the quarter.

Analysts said that it would be interesting to understand the management’s outlook on individual loan growth. “Commentary on the company’s plans to scale up disbursements and guidance on NIM and credit costs for FY24 will also be important,” wrote analysts at Motilal Oswal.

At 9.30 am, the stock was trading at RS 452.70 on the BSE, down 1.10 percent from the previous close.

In the past week, LIC Housing has gained 2 percent as against 0.7 percent rise in the benchmark Sensex.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.