CLSA has upgraded LIC Housing Finance to an Outperform rating but reduced the target price to ₹700, implying a 13% upside from the current market price of ₹618.70. While the company’s Q2 net interest income (NII) and pre-provision operating profit (PPOP) fell short of estimates by 6-7%, the profit after tax (PAT) exceeded expectations by 7% due to lower credit costs.
The PPOP weakness stemmed from reduced spreads and higher-than-anticipated operating expenses. Calculated spreads have narrowed by 40-50 basis points over the past two quarters, reaching 1.8% and aligning closely with pre-rate tightening levels. However, a key positive was LIC Housing’s asset quality, with a sequential 25 basis points drop in the gross non-performing loan (GNPL) ratio, attributed partly to upgrades and recoveries. Credit costs also improved, averaging 15 basis points in the first half of FY25 compared to 60 basis points for FY24.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors are advised to perform their due diligence before making investment decisions.
