LIC Housing Finance is an attractive player in the housing mortgage market, with positives such as stable margins going ahead, pick-up in business growth helped by low interest rates, stable property prices, rising affordability and the government’s push to drive demand for housing. Going forward as corporate credit demand / capex reboot is expected to pick up in FY22E, Sharekhan believes it will augur well for HFCs as they may see lower competition from banks. Visibility on asset quality has improved for LIC Housing Finance. 

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LIC Housing Finance had Covid-19 related provisions of Rs 212 cr and provisions for impairment at Rs 186.5 cr as of Q3 FY21. As the restructuring window has closed, and the confident management commentary of LIC Housing Finance indicates little residual stress, Sharekhan believes that the company is well placed. ECLGS provisions at 1.3% of loans they believe are reasonable, given that the home mortgage loans (especially to individuals and salaried borrowers) are relatively well secured. LIC Housing share price today is Rs 465, down Rs 14 or 3%.

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LIC Housing Finance has strengths in terms of its borrowing profile and has been able to reduce cost of funds, helped by a strong parent profile and we believe conservative LTVs and inexpensive valuations make risk-return favourable. LIC Housing Finance have fine-tuned our target multiple as we believe the outlook is improving and challenges to asset quality and growth are key monitorables but receding. Sharekhan maintains a Buy rating on LIC Housing Finance with a revised price target of Rs 610.

LIC Housing Finance Key Risks:

Increased delinquencies in the developer book may impact asset quality and affect profitability.