Jefferies Sees This Indian Financial Stock Benefit From Rising Interest Rates, Has ‘Buy’ Tag


Demand for home loans remains strong and the rise in home loan rates of 125/110 basis points YTD FY23 could increase spreads for LIC Housing Finance despite the rise in interest rates given the favorable profile of floating assets / liabilities fixed, according to global brokerage Jefferies.

“Asset quality issues have likely peaked and the share of wholesale (higher-stressed) loans is declining. We expect some slippage from the restructured portfolio, but it seems largely priced in. Lower credit costs should further support earnings growth. At 0.9x FY23e BV, valuations look attractive,” the rating said. Jefferies maintained its buy rating on LIC Housing Finance shares with a target price of 510 ( 450) on it sees the company better positioned in the face of rising interest rates.

LIC Housing Finance has raised rates on new and existing home loans by 125/110 basis points (including a 50 basis point hike in August) in FY23 since the start of the year. With 96% floating rate loans and 51% fixed rate liabilities, back book spreads could increase to around 2% from 1.87% in March. This could increase overall spreads, despite somewhat lower spreads on new loans and a 10 basis point increase in spreads could increase EPS by 6%, according to the brokerage.

Strong housing momentum is expected to support a 15% CAGR in home loans over the next 3 years. Overall loan growth could be a little lower at 13% CAGR in FY22-25e due to moderate LAP book growth and marginal decline in developer book, he pointed out.

“LIC Housing should benefit from strong momentum in housing demand. With over 50% fixed liabilities and 96% floating rate loans, LICHF should manage spreads better than most HFC peers. Asset quality concerns are easing and most stress in the non-housing portfolio has been acknowledged,” Jefferies said and expects Stage 3 assets to stabilize and credit costs to come down. in FY22-25e, resulting in a healthy EPS CAGR and ROE of approximately 14% in FY22-25e. .

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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