5 August 2019: For LIC Housing Finance, first quarter was all about keeping its balance sheet from getting hurt. In that, it succeeded on some parameters, but failed in others.
The housing finance company managed to grow its core income by 18% and maintain its margins in an environment vitiated by liquidity crunch and a deepening real estate slowdown.
But it couldn’t escape the impact of the slowdown on asset quality and growth metrics.
Disbursements showed how bad developer finance has turned while individual mortgages continued to buttress growth. Overall disbursements grew by just 7%, a reflection of the current slowdown in real estate. Individual mortgages grew at a slow pace of 8%.
LIC Housing Finance’s project loan disbursements shrank from a year ago period. This is a good thing as developer finance is where the pain is and every housing finance company is becoming choosy here. This ensures some safety in future asset quality. That said, the developer book still stands at nearly 7% of the total loan assets.
To be sure, LIC Housing Finance has built itself enough provisions to keep it safe against risks. But for the June quarter, its stage three bad loans, as per new accounting standards, stood at 1.98%, an increase from 1.34% in the March quarter.
“Asset quality miss continues and it looks more linked to the weak real estate market than technical slippage concerns, as indicated by management in 4QFY19,” said analysts at global brokerage firm Nomura Securities.
The firm forecasts a sharp rise in average credit costs for the lender compared with the 15 basis points average credit costs over last 5-7 years. One basis point is one-hundredth of a percentage point.
The stock fell over 1% in the first hour of trade, partly because of the weakness in the broad market. It traded at a modest multiple of about 1.3 times its estimate book value for FY21 which analysts believe captures asset quality expectations.
Categories: Indian Earnings