Shares of LIC Housing Finance Ltd fell 8.5% on Wednesday in response to its September quarter (Q2FY23) earnings. The company’s Q2 profit after tax was 305 crores, which is a 67% sequential decline. Profits are much lower than analysts’ estimates, paving the way for a fall in FY13 earnings estimates.
In order to retain its high quality consumers, LIC Housing has converted loans of approx. 9,000 crore from fixed rate to floating rate. One of the effects of this re-pricing is an accounting loss. 275 crores according to the company. Against this backdrop, on a sequential basis, net interest income declined by 28% and net interest margin (NIM) declined by 74 basis points (bps) to 1.8%. One basis point is 0.01%. Some analysts were expecting an improvement in NIM in the second quarter.
see full image
LIC Housing’s management has tried to allay analysts’ concerns about margins, but not everyone is satisfied.
“We are not entirely convinced of the rationale for management and the extent of margin impact from converting fixed-rate loans to floating portfolios. Clearly, the rising interest rate scenario is unfavourable for LIC Housing and such a move makes us increasingly cautious on the stock,” said Krishnan ASV, Senior Vice President, Institutional Research, HDFC Securities.
“The company does not have a large developer portfolio to offset the high competitive intensity in the core mortgage book. The major risk we see in LIC Housing is huge volatility in earnings, which is unusual for a housing finance company. and undesirable.”
If the housing sector sustains momentum, it could support LIC Housing’s credit growth. The company’s shares are now down about 17% from their 52-week highs seen in September on the NSE.
Gaurav Jani, Analyst, Prabhudas Lilladher said, “It looks like the stock has bottomed out at current levels and we don’t expect any sharp downside from here.
After the forgettable second quarter, investors should watch for any further impact from the conversion of loans in the coming quarters. Improvement in NIM is a key trigger for the stock.
In the third quarter, conditions are up for recovery at NIM, with the impact of a 115bps rate hike coming into play by the company. In its earnings call, management said, on a full-year basis, margins in fiscal 2012 will be better than in fiscal 2012 when the measure stood at 2.29%. All eyes will now be on the recovery in NIM in the second half of FY23.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.