Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LIC Housing Finance Ltd (BOM:500253, Financial) reported a 12% year-on-year growth in profit after tax for Q2 FY25, reaching 1,328.89 crores.
- The company's total disbursements for the quarter increased by 12% year-on-year, with individual home loan disbursements rising by 4%.
- Asset quality improved, with stage three exposure at default reducing to 3.06% from 4.33% the previous year.
- The company launched a new product in the affordable housing segment, targeting higher margins with pricing about 250 basis points above standard home loans.
- LIC Housing Finance Ltd (BOM:500253) observed a sequential growth in its wholesale book for the first time in several quarters, indicating a positive trend reversal.
Negative Points
- Net interest income declined marginally to 1,974 crores from 2,107 crores in the same period the previous year.
- Net interest margins decreased to 2.71% from 3.04% year-on-year, reflecting pressure on profitability.
- The company's yield on assets has decreased by 27 basis points, despite a competitive environment where rates are generally increasing.
- Provision coverage ratio for stage one and two loans has decreased, raising concerns about potential future credit risks.
- The cost of funds remains relatively high, with incremental cost of funds at 7.71%, impacting overall profitability.
Q & A Highlights
Q: Can you explain the decline in yield on assets despite the competitive environment and minimal change in asset mix?
A: (Tribhuwan Adhikari, CEO) The focus was on growth, especially in the home loan segment, which led to a temporary decline in yields. However, we have plans to manage this as the rate cut cycle begins, with half of our liabilities on a floating rate and strategies like derivative contracts to align liabilities with assets. (Sudipto Sil, CFO)
Q: What changes have been made to the provision coverage ratio (PCR) for stage one and two loans?
A: (Sudipto Sil, CFO) The reduction in PCR for stage one and two loans is due to the resolution of loans under the one-time restructuring post-COVID. These loans were performing but were kept in stage two as a precaution. Now, they have either moved to stage three or are performing, stabilizing the PCR.
Q: Why has there been an increase in disbursements in development finance despite market signals of a slowdown?
A: (Tribhuwan Adhikari, CEO) We are cautiously optimistic about development finance, focusing on select developers with strong external ratings (triple B or higher). We see opportunities as property markets improve, and our approach remains guarded to mitigate risks.
Q: How does the company plan to handle potential rate cuts in terms of repricing loans and liabilities?
A: (Sudipto Sil, CFO) Loan repricing occurs at the start of each quarter, while liabilities linked to repo or treasury bills adjust immediately or by month-end. This timing provides some cushion, and we expect bond yields to soften before rate cuts, benefiting our cost of funds.
Q: What is the company's strategy for entering the self-employed affordable segment, and how will it manage associated risks?
A: (Tribhuwan Adhikari, CEO) We are entering the self-employed affordable segment cautiously, recognizing its potential and higher margins. We are building infrastructure and capabilities to manage risks, with a focus on due diligence and monitoring. This segment is expected to contribute significantly to our portfolio over the next few years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
