 "LIC Housing Finance")
The LIC Housing Finance (LICHF) results for the financial year 2024-25 (FY25) and Q4FY25 indicated slow loan growth and intensifying competition. The company is trying to move into higher-yield segments. The Q4FY25 net profit grew 25 per cent year-on-year (Y-o-Y) to ₹1,370 crore and the FY25 net profit grew 14 per cent Y-o-Y to ₹5,430 crore.
The Q4 net operating income declined 3 per cent Y-o-Y to ₹2,170 crore with a net interest margin (NIM) expansion of 15 basis points quarter-on-quarter (Q-o-Q), given better liquidity management and 10 basis points prime lending rate (PLR) hike (which was reversed in quarterly reset in Q1FY26). Fees and other income jumped 240 per cent Y-o-Y to ₹160 crore, driven by recoveries from written-off accounts.
Operating expenditure grew 18 per cent Y-o-Y to ₹450 crore and the cost-income ratio rose 250 basis points Q-o-Q to 19.4 per cent. The pre provision operating profit (PPOP) was at ₹1,880 crore, down 1 per cent Y-o-Y. Yields in FY25 stood at 9.8 per cent, while cost of funds (CoF) was 7.73 per cent with spreads improving to 2.05 per cent.
The management said NIMs will be under pressure in FY26, and emphasised a tightrope walk between loan growth and margins, since banks are aggressive in a declining rate environment. The majority of the LICHF loan book is subject to quarterly resets. Lower rates, which will come into effect in July ’25, will put pressure on yields. Further, RBI policy rate cuts could compress NIM more. The guidance is for NIMs of 2.6-2.8 per cent in FY26.
The home loan market is very competitive. But management believes double-digit loan growth in FY26 is possible despite aggression from banks. LICHF is diversifying into affordable housing and non-housing, but the pace of the shift is slow. It guided for disbursements of ₹2,000 crore in affordable housing in FY26, and estimates it will take 2-3 years for this segment to ramp up.
Loan disbursements in individual home loans grew 8 per cent Y-o-Y, while non-housing individual and commercial disbursements rose 19 per cent Y-o-Y. Builder and project disbursements declined 42 per cent Y-o-Y. Total disbursements rose 5 per cent Y-o-Y and 24 per cent Q-o-Q to ₹19,200 crore. The loan book grew 7.3 per cent Y-o-Y (3 per cent Q-o-Q) to ₹3.08 trillion.
Asset quality as reflected in Gross Stage 3 and Net Stage 3 improved 30 basis points and 25 basis points respectively Q-o-Q to 2.45 per cent and 1.2 per cent. The Stage 3 provision coverage ratio (PCR) rose 4 per cent Q-o-Q to 51.3 per cent. Credit costs stood at ₹110 crore, implying annualised credit costs of 14 basis points. Net recoveries in FY25 stood at ₹1,800 crore with ₹615 crore recovery in Q4FY25 and guidance is for recoveries of ₹1,500 crore in FY26. The total expected credit loss provisions are ₹4,900 crore with Stage 3 PCR at 51 per cent and technical write-offs of ₹1,368 crore in FY25.
Hyderabad and Bengaluru saw negative business impact in Q3FY25. But both these markets have largely stabilised. The executive committee of LICHF has approved restructuring of another wholesale account in May ’25, with an exposure of ₹450 crore, to be classified as NPA until May ’26.
The guidance is for disbursement growth of 10-15 per cent and a double-digit loan growth with NIM at 2.6-2.8 per cent and spreads of 2 per cent. LICHF would need to increase disbursements to margin-accretive areas, where yields are better and diversify into non-housing.
Gross non-performing assets (GNPA) is expected to decline to below 2.2 per cent and credit costs guidance is 9-15 basis points. Asset quality will continue to improve. Some big-ticket project loans are in default with litigation. LICHF is extending an offer for settlement, but the floor is the principal outstanding.
Despite earnings sustaining in Q4FY25 and NIM expansion, LICHF has concerns about muted loan growth and FY26 may be difficult, with pressure on margins and competition from banks. The low valuations of the stock are due to the tepid growth. The key risks would be an extended period of weak growth and NIM volatility and higher ECL provisioning.
