The share price of LIC Housing Finance declined over 5 percent in the early trade on Monday after the company reported weak earnings in the fourth quarter of fiscal 2020.

Share Market Live

NSE

The stock touched an intraday low of Rs 269.55 apiece after falling 5.33 percent on the BSE. At 11:20 am, the shares were trading 5.09 percent lower at Rs 270.25.

The company reported a 39 percent fall in its consolidated net profit to Rs 424.31 crore in Q4FY20 as against Rs 696.91 crore in the year-ago period.

Net interest margin dropped to 2.1 percent leading to a 7 percent YoY drop in net interest income.

This was mainly due to falling loan yields. To some extent it was also due to higher liquidity on its balance sheet, CLSA said.

“LICHF’s margin has been improving since FY19 due to comfortable liquidity and low wholesale funding rates and also an increase in its LAP/builder book. While LICHF is unlikely to see funding pressure like peer HFCs, its loan yields is catching up with a drop in its cost of funds, and SBI’s competitive pricing on mortgages will continue to cap mortgage NIMs,” CLSA added.

The brokerage maintained 'Buy' rating on the stock but cut target price to Rs 350 from Rs 530 earlier. CLSA factors in 4 percent slippage for LIC Housing Finance over FY21-22CL.

Asset quality of the company weakened as gross non-performing assets during the quarter rose 10 bps sequentially to 2.83 percent.

The company said that around 25 percent of its loans are under moratorium.

Loan growth decelerated to 8 percent YoY (13 percent in 3Q), due to 34 percent decline in disbursal. After growing at over 16 percent in 2Q, 3Q, core home loan disbursal dipped 24 percent YoY.

“We expect earnings to be weak in FY21 as Covid related disruptions, weak housing loan demand will affect loan growth. Asset quality should worsen given higher stress in developer/ SME segments and given the relatively weak underwriting track record,” Jefferies said.

The brokerage maintained an 'Underperform' rating on the stock with a target price at Rs 225 per share. It believes valuations appear reasonable, but elevated asset quality risks and overhang related to a potential IDBI merger should weigh on valuation multiples.

Jefferies believes that the company has lower provision buffers and downgrades can impact earnings in FY21-22.

Catch all the latest updates from the stock market here.