Home / Markets / Mark To Market /  LIC Housing's net interest margin cause for anxiety
Back

Shares of LIC Housing Finance Ltd plummeted by 8.5% on Wednesday in reaction to its September quarter (Q2FY23) earnings. The company’s Q2 profit after tax stood at 305 crore, which is a 67% sequential drop. Profits are far below forecasts of analysts, paving the way for reductions in FY23 earnings estimates.

To retain its high quality consumers, LIC Housing has converted loans worth about 9,000 crore from fixed-rate to floating rate. One of the impacts of this re-pricing has been an accounting loss of 275 crore, according to the company. Against this backdrop, on a sequential basis, net interest income fell by 28% and net interest margins (NIM) dropped by 74 basis points (bps) to 1.8%. One basis point is 0.01%. Some analysts were expecting NIMs to improve in Q2.

A letdown
View Full Image
A letdown

LIC Housing’s management has tried to assuage the concerns of analysts about margins, but not everyone is satisfied.

You might also like

The test for India’s sovereign green bonds

Why Nykaa's fashion biz is a blemish for growth

KKR, Temasek eye stakes in Manipal Health

Centre wants Voda Idea promoters to pump in more equity

“We are not completely convinced with the management’s rationale and the extent of margin impact from switching fixed-rate loans to a floating portfolio. Clearly, the rising interest rate scenario is unfavourable for LIC Housing and a step like this 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. A larger risk we see in LIC Housing is the sheer volatility in earnings, which is unusual and undesirable for a housing finance company," he said.

If the momentum in the housing sector persists, it could well support LIC Housing’s loan growth. Shares of the company are now down about 17% from their 52-week highs seen in September on NSE.

“The stock seems to have bottomed out at current levels and we do not foresee a sharp correction from here on," said Gaurav Jani, an analyst at Prabhudas Lilladher.

After a forgettable Q2, investors should track 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 remain upbeat for recovery in NIM with the impact of 115bps rate hikes by the company coming into play. In its earnings call, the management said, on a full year basis, margins in FY23 would be better compared to FY22 when the measure stood at 2.29%. All eyes will now be on the recovery in NIM in the second half of FY23.

Elsewhere in Mint

In Opinion, Debjani Ghosh says G20 presidency can make India the architect of a redesigned digital economy. Biju Dominic says activity trackers can change your beahviour. Amit Kapoor & Bibek Debroi tell how to boost India's competitiveness. Long Story reveals the ugly truth of a dud vaccine.

Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout