Domestic brokerage firm JM Financial is bullish on the midcap housing financier LIC Housing Finance after its Q2 financial results. As per the brokerage, the home financing company reported a 12% beat in PAT at Rs 1,330 crore on the back of lower credit cost at 10bps of total loans.

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Operating performance remained largely in line with net interest income (NII) at Rs 1,970 crore, down around 6 per cent on-year amid a sequential decline in NIMs or net interest margin.  Recoveries during the September quarter, however, contracted to Rs 86 crore versus Rs 90 crore in the previous Q1 period of the ongoing fiscal year. In respect of the recoveries, the management expects a similar pace to continue going forward.

Yields at the company slipped 6 bps sequentially, while the cost of funds also declined, down 3 bps quarter-on-quarter (QoQ) during the review quarter.

Opex or operating expenses increased during the review quarter to Rs 310 crore, up 20 per cent year-on-year (YoY) on the back of  higher disbursals and revision in gratuity estimates.

Furthermore, for the September quarter, disbursements grew 12 per cent YoY, with loan book scaling to Rs 2.95 lakh crore. During the review quarter, the company started disbursements in project loans which resulted in sequential loan growth of 11 per cent in the segment, however, management guided for a cautious approach.

Meanwhile, the company also guided for new product launch of affordable housing to self-employed customers which would offer +250bps yield differential over prime loans. This should aid in margins expansion over 2HFY25, added the brokerage in its report.

We are slightly concerned about the margin we are getting on our products; our backbook has been under pressure, impacting our margins to some extent. Incrementally, there is a lot of competition in the market as well as from banks. Markets are slightly compressed. This is something we are focused on. In Q3 and Q4, we will focus on the prime segment of customers. We realise the need to move into high-margin segments. Last month, we launched an affordable segment product,” said Tribhuwan Adhikari, managing director (MD) and chief executive officer (CEO) of LIC Housing Finance.

The brokerage believes LIC Housing Finance to deliver a return on assets (RoA) and return on equity (RoE) of 1.8 per cent and 15 per cent by FY26 on the back of 

- Pick up in loan growth (largely from affordable segment)

- Steady margins (2H margins are expected to improve with high yield affordable growth and developer loans), and

- lower credit costs led by recoveries.

Likewise, it has continued with its 'BUY' rating on the counter with the target pegged at Rs 750 valuing  the housing financier at 1.0x FY26E BVPS. The set target implies an upside of nearly 18 per cent from the previous close.

LIC Housing Finance share price performance 

In the last one year, the stock has gained as much as 45 per cent, while it last traded flat with marginal gains at Rs 638 per share.