On Tuesday, CLSA upgraded LIC Housing Finance (LICHF:IN) stock from a 'Hold' to an 'Outperform' rating, although the price target was reduced to INR700.00 from INR700.00. The adjustment follows the company's second-quarter financial performance for the fiscal year 2025, which presented a mixed set of results. The net interest income (NII) and pre-provision operating profit (PPOP) fell short of CLSA's predictions by 6%-7%. However, the profit after tax (PAT) exceeded expectations by 7%, attributed to a lower credit cost.
The firm noted that the decline in PPOP was due to a reduction in spreads and higher-than-anticipated operating expenses. Over the past two quarters, calculated spreads have decreased by 40-50 basis points to 1.8%, approaching levels seen before recent rate tightening measures. Despite these challenges, LIC Housing Finance demonstrated a positive trend in asset quality. The gross non-performing loan (GNPL) ratio saw a 25 basis point sequential decrease, nearly half of which was driven by upgrades and recoveries.
In light of these developments, CLSA has revised its PAT estimates for LIC Housing Finance upward by 3% for FY25, while maintaining its FY26/27 forecasts. The analyst firm acknowledges that while there are no immediate catalysts for an upward price revision, they believe the downside risks are limited. Consequently, the price target has been adjusted to INR700, representing a valuation of 0.9 times the projected September 2026 book value, but the stock's rating has been enhanced to reflect its improved outlook.
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