LIC Housing Finance Limited (LICHSGFIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Q1 FY '27 Investor Conference Call hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal. Thank you, and over to you, sir.

Thank you, Ara. Good day, everyone, and welcome to the Earnings Call of LIC Housing Finance. From the management team, we have Mr. Tribhuwan Adhikari, MD and CEO; Mr. Sandeep Kumar, CEO; and Mr. Lokesh Mundhra, CFO. I would request Mr. Adhikari to share his opening remarks, post which we'll open the floor for Q&A. Over to you, sir.

Thank you, Praveen. Very good morning, and welcome to all of you to the post earnings conference call of LIC Housing Finance Limited. As you are aware, LICHFL declared its Q1 FY '27 results yesterday. Before discussing our financial and operating performance, let me briefly touch upon the evolving macroeconomic environment. The global microeconomic environment continues to remain uncertain due to heightened geopolitical tensions, particularly the renewed escalation of the U.S. Iran conflict, which has led to volatility in crude prices and global financial markets, while major central banks continue to adopt a cautious policy stance, the Indian economy remains resilient supported by strong domestic demand, healthy government capital expenditure and a robust financial sector. Inflation remains broadly within the RBI's comfort zone despite potential upside risks from higher crude oil prices. And India's GDP is expected to remain among strongest globally. Against this backdrop, the market expectations currently indicate that the RBI is likely to maintain the report at as presence level over the near term. While the recent geopolitical developments have introduced upside risk to inflation through higher crude oil prices, the RBI is expected to carefully balance inflation management with the need to support economic growth. Stable domestic rate -- interest rate environment should continue to support credit demand for particularly in the housing sector, while also benefiting funding costs and asset quality across the industry. With that backdrop, let me now take you through our financial performance and key business highlights for the quarter. Total revenue from operations was INR 7,062 crores as against INR 7,196 crores for the corresponding quarter of the previous year. [indiscernible] As on 30th June 2026 against INR 3,587 crores as on 30th June [indiscernible], reflecting a growth 4%. Out of this, the individual Home Loan portfolio stood at INR 271,979 crores as against INR 262,411 crores, up by 4% and comprises 84% of the total portfolio. Total disbursements for the quarter were INR 15,014 crore as against INR 13,116 crores, up by 14.5%. Out of this, disbursements in the individual home loans were INR 12,119 crore as against INR 11,247 crores, up by 8%, and now housing individual loan segment were INR 1,975 crores as against INR 1,647 crores, up by 20% whereas project loans of wholesale [indiscernible] were at INR 872 crores compared with INR 156 crores in Q1 of FY '26, up by [ 459% ]. Net interest income stood at INR 2,075.52 crores for Q1 of FY '27 as against INR 2,064.71 crores for Q1 FY '26. Net interest margin for Q1 FY '27 stood at 2.58% as against 2.68% in Q1 of FY '26. Profit before tax for the quarter was INR 1888.43 crores, as against INR 1,699.516 crores in Q1 of FY '26, up by 11%. Profit after tax for the quarter stood at INR 1488.32 crores as against INR 1359.92 crores for the same period in the previous year, up by 9.4%. In terms of asset quality, Stage 3 exposure at default stood at INR 2.14 crores -- 2.4% as of 30 June 2026, as against 2.62% as on 30 June 2025. Total provisions as of 30th June of current year, stood at INR 4,398 crores, reflecting a provision covering of approximately 48%. The company also conducted a sale of a stressed asset through ACC -- for ARC for a cash consideration of INR 140 crores during Q1 of FY '27. On the funding side, our cost of funds stood at 7.28% as on 30th June '26, as against 7.50% as on 30 June '25 and 7.27% as on 31st March '26, reflecting a reduction of 22 basis points Y-o-Y. Our incremental cost of funds stood at 7.06% for Q1 FY '27, as compared to 6.86% for Q4 of FY '26 and 6.97% for Q1 of FY '26. Despite the elevated interest rate environment during the quarter, our cost of funds remains largely stable, reflecting the strength of our diversified both borrowing profile, prudent liability management and timely access to multiple funding sources. With this brief introduction, I would like to invite you for your queries. Thank you.

[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global Financial Services Limited.

Couple of questions. First, on overall growth and margin trajectory. So if we look back, I mean the kind of a 5-year data projected, the growth and margin both have not been coming the way you would have thought. But if you look in the context of industry, and particularly from your peers who are reasonably active into prime housing as well, they have done real well. So now what sort of going forward, what are you going to do different that gives you kind of that believe that the growth and margin trajectory from here on what could that is alter or could be materially better than here? What has not worked for the last nearly 5 or years? The second is on, if I were to look at developer finance, of course, our exposure is very limited. But again, there also, if you look back nearly for 5 years, [indiscernible], I would say, opportunity for many of the lenders in housing finance and NFC, NBFCs owing to HDFC getting [indiscernible] Bank. And a lot of your peers have kind of ceased upon that opportunity. But in this round at least, you seem to have missed that burst. Now from here onwards, what kind of opportunity you see in the developer finance, particularly from the risk adjusted return perspective because the past track we call for you in this segment in not so great.

I'll take your growth question for the part related to growth. Well, yes, you might be looking at the AUM growth of 4% and that is why you say that growth has not been satisfactory. But if you look at the disbursement growth for quarter 1. As I said, the disbursement growth is -- as per our standard pretty okay, 14.5% growth as compared to year-on-year, which we had in the beginning in the Q4 earnings call, I have given an indication or guidance that first quarter will be growing at 15%. So more or less, our growth is in line with the guidance. And I think by growing at 15%, traditionally, we -- our growth has been what sub 10%, right? So we do see some traction as far as growth in business is concerned in the quarter. And looking into Q2, of course, this is the first month July. We are still back on track. Q2 also I see in fact, we are targeting a 15% growth in Q2. So I think as far as the disbursement front is concerned, I think we should do well this year. And the guidance we have given of 10% to 12% growth, we will be able to achieve that. Yes, the book growth is going to be gradual. It is not going to happen overnight because apart from the growth -- the loans get added up due to disbursement, there are a lot of exits also by way of maturities by prerepayments, full prepayments and of course, BT. In quarter 1, our BT out is at INR 3,000 crores approximately. BT is about 1.5%. So net BT-out is about the INR 1,500 crores. And I think this is okay. This is in line what we do expect. So you will be witnessing a good disbursement growth this year. The book will grow gradually, as disbursements grow. Now coming to your margin call, yes, margins indications in the beginning of the year was [ 2.6 to 2.7 ] provide everything remains okay, geopolitical, economics, et cetera, et cetera. We have ended the quarter at [ 2.58], 2 basis points below the guided the lower end of the guidance at [ 2.6 ]. But anyway, this was expected because last year, -- there were a lot of rate cuts in the overall book as well as the new borrowing book, which we had to introduce because of the rate cuts by RBI and in keeping in line with the reduction in repo rates of banks due to the rate cut. So since we are competing largely with banks on the IHL individual home loan front, we had to be competitive. And that has, to some extent, impact on the margin. But again, this year also like last year, is going to be, let me say, a war or a tug of war between high growth and maintaining our margins. And we would be, of course, looking to try and do both at the same time, grow our books through higher disbursements and more of retentions. And at the same time, increase or rather maintain our NIMs at the guided level of [ 2.6 ] ensuring by probably focusing on better borrowing costs. We are also looking at a product diversification strategy, which has been on for the past 2 years. It is gaining ground. We are slowly trying to reduce our share of individual home loans and probably get into the what we call the nonindividual home loans, basically, meaning the LAP and the LRD segment, there has been traction on that. That book is growing, right? And Also, yes, on the other front, we also look at this year, we'll be looking at, as I said in the beginning of the year in organic growth through direct assignment and coal lending, the policy is on the final stages. And we should be -- I think in Q2, we should be starting with direct [indiscernible] co-lending business. That would also give us some book growth, and we will be also looking at increasing our margins. So that is about the margin part of it. Yes, developer finance book, yes, it is a small part of our book, not too much of thing. Yes, last year was a point in year from the development of finance perspective. Throughout the year, we could do about [indiscernible] of disbursement in developer finance. This year, the start has been good. The first quarter, I think we have done about INR 850 crores or INR 872 crores of disbursement in the wholesale book as a developer finance book. Growth is very high at 450%, largely to do with the low base of last year. Yes, we are interested in the development finance book. But again, cautious, steady. The other part of it is we are also looking at margins from the development from development finance book, which is right now under extreme pressure. The big builders, really good builders they are demanding prices abate, which we feel as a company that it is not in our interest to do developer finance at 8 or sub 8, right? We need margins from there. So we are looking at good quality grade builders last -- till last year, we had this overhang of the developer companies or the builders being minimum rated BBB or above. So this year, this is going to go -- not yet going completely. This year, this is going to go. We have a credit risk policy for developer finance, which is almost ready. So going to be and the [indiscernible] Board in the coming months. So I think that overhang will go, that will help us get into slightly lower rated [indiscernible]. We need to be careful that yes, we chose the good ones with a good track record. So but again, we do not get into the sort of kind of problems we had in the past. So developer finance book should do well. We have set a modest target of about INR 4,000 crores for the current financial year. The expectations are, of course, that we would probably be doing INR 7,000 or to INR 8,000 crores in develop our finance. I hope that answers all 3 parts of your question.

As, again, Lokesh [indiscernible] supplementally what our MD said. So though portal growth is 4%, but in absolute term, fine, it is more than INR 2,500 crores plus. So being a largest housing finance company, definitely, if you compare it in the percent term the [indiscernible] the list, but in absolute term, let's say a very good growth. And secondly, in terms of my disbursement for 15% growth year-on-year. So that is in line with our expectations.

And sir, in the buffer finance that you are targeting, any sort of kind of range of project or probables or what kind of a typical ticket size that you want to say that, okay, we'll not go beyond that ties something of that sort in mind?

No, no. I don't think we have any ticket size in mind. We are going to consider all sorts of ticket sizes, right, right, from probably at the low end, small developers wanting small loans of INR 25 crores, INR 30 crores, right up to big developers asking us for INR 300 crores, INR 400 crores. That also [indiscernible] But I think what we'll be looking at in developer finance is the kind of [indiscernible] Which these borrowers are willing to give us, right? So going to probably a [indiscernible] who is demanding sub 8. I don't think that is what we are looking at. And we are taking calls on probably not going for that just for the sake of building the book because we want margins. We want some margins in the developer finance book. Right now, our margins are probably close to, we are lending at roughly 10.5% in the developer finance book. So we would be wanting rates closer to that.

The next question is from the line of Gaurav Khandelwal from JPMorgan.

I've got a few questions. My first previously, your philosophy was more on protecting margins at the cost of growth. And given your comments just now, is it fair to assume that the philosophy is now evolving to chase growth rather than margins? How should one think about that?

Okay. yes, last year, I had given an indication that given a choice, I would like to protect margins as compared to growth. This year, I would say we would try to balance growth along with margins, right? So it is not going to be that we are going to shun growth and look only for margins, we are trying to grow the book because that is important from the long-term perspective. And at the same time, margins are important to me because it now you growing the book at lending rates, which probably do not help me, help my margins on and so forth. So we have to look at the best of both worlds, trying to protect the margins as well as trying to grow the book through higher disbursements and better retention.

Got it. And the other question I have is on costs. So if I look at the Y-o-Y cost growth, that's actually quite high. in first quarter. Can I understand what is driving this year-on-year cost increase? And is it also to do something with initial investments in hiring more people that you had mentioned last quarter and setting up your tech architecture for enabling digital co-lending and DA models. So I just want to understand what is driving the high year-on-year increase in cost.

Yes. Yes, we have been having -- yes, we have been hiring, but it is not significant that should increase -- that should really sort of disturb my cost. The main cost is -- the main reason for the increase in costs, which you see is a gratuity provision of INR 22 crores, which we had to make due to increase in the GSC yield. So this is a one-off. This is a one-off which has happened in this quarter, an increase in the gratuity provision of the employees due to an increase in set yield. Otherwise, the costs are all well within range. Yes, the IT spend has not yet taken place. It will happen. There is a significant IT spend, which is to come in the year, during the course of the year. It has not yet happened yet, but it will probably come between Q2, Q3 and Q4.

Got it. And just a final question on -- there is a significant drop in noninterest income. And so what I want to understand, is there some adjustment and recovery item where you have excluded that from noninterest income and adjusted that with provisions because we were not expecting a provision write back. Could you also give us more color on the NPA account recovery, which has happened? And how much is the provision release on back of that?

Okay. Yes, regarding the other income, which you see are drops, there has been a slight accounting change, right, in the current quarter, which our auditors wanted us to do. Until last year, recoveries from written off NPE accounts were being -- which was -- current quarter, it is about INR 31.87 crores was being added to other income. This year, this has come -- this has been so much under the impairment, I would say, had. So basically, the INR 37 crores of recoveries which last year went into -- would have gone into other income has now come under the impairment the impairment hit. So that is why you see this. slight anomaly.

Got it. And in that context of this, what's your view guidance for full year on this new credit cost should we think about this for the full year? And also for FY '27 entire year, should we think of 15% as the disbursement growth rate?

Yes. Coming to credit costs. Right now, it is negative 5 basis points, right? The credit cost guidance, which we had given at the beginning of the year was about 10 to 15 basis points. we are net in line to achieve that. The asset quality has been improving quarter-on-quarter. This quarter, of course, there was one big one-off of INR 180 crores of NPA, which we sold to NARC for INR 140 crores. That was a big one-off. But they will be similar -- there will be similar recoveries coming in Q2, Q3 and Q4. A lot of our big legacy loans are in very advanced sales of resolution. So you could expect some big reduction in NPA because of revolution of this. For the quarter, the recovery from NPA accounts was INR 540 crores, [indiscernible] about INR 307 crores. So there has been an increase. So the asset quality is going to improve. Right now, GLP is at 2.14%. Guidance for the year is 2% less than 2%. We are definitely going to achieve that, in fact, to be much better than 2%.

But the 10 to 15 basis points credit cost guidance is before the recoveries number?

As at the beginning of the year, yes, that took into account the various kind of recoveries we expected during the year.

Okay. Got it. And on disbursement target for the full year?

Disbursement target right now, 14.5% growth quarter 2. We have given an indication of about 15% growth for the full year, we stick by our guidance of 10% to 12%, which we had given in the beginning of the year.

The next question is from the line of Kunal Shah from Citigroup.

So firstly, with again, touching up on the provisioning aspect. So that upgrade of restructured account, which was going to happen and there was expected to be and maybe the provisioning release from there. Is that also included in this provisioning line item, if you could just highlight this entire breakup of INR 165-odd crores, how we are getting to this number because you mentioned like recovery from written-off account is also considered out there. So that would be very helpful in terms of the breakup, yes.

Yes. Coming to the first question, yes, that big restructured account of about INR 500 crores is not included in this. So as per the decision of the executive committee, the account was restructured from the 1st of May 2025. So technically speaking, that one period should have expired on the 1st of May or the 31st of April 2026. But somehow our auditors were of the view that since the payments came in -- the first payment came in a little bit late. -- it was as per the restructuring schedule, the payment did not happen exactly on 1st of May. The first payment happened later. They have not allowed us to consider that as upgraded, but that will happen in Q2 or Q3. So that big restructured account is not in the reporting of Q1. And the second part of your question was the -- Kunal, can you come again? What was the second part?

Yes. So this entire write-back is primarily on account of the recovery from return of. It's not only the provisioning release of this restructured account?

No, no. The restructured account is not appearing in the reporting of Q1.

Got it. And the payment which you have received, is that the so what portion of this INR 500 crores has been received till now? And in terms of the release of provisioning, would it be in terms of the actual payment or maybe now given that 1 year because last time you were confidently saying that 1 year will be done and we will upgrade it. So should we see it on the payment because now you are seeing Q2 and Q3 as well. So it appears like it depends on the actual payment that we will do the provisioning release.

So there is some difference in the point of view of the management and the auditors, [indiscernible] auditors. Otherwise, personally, if you ask me, a technically speaking, 1 year is the coding of period, the Executive Committee had restructured this account on the 1st of May. We feel that it should have been taken as updated in the current quarter, but somehow auditors have a different point of view. We are still discussing with them, trying to iron out the issue. But this quarter, it has not happened. So it could happen in quarter 2. That is what I'm saying.

And payment ratio quantum?

For the restructured account?

Yes.

No. There are two accounts I'm talking of. One is the big account, which was sold to an ARC in the current...

Yes, I got it. Yes, that is INR 140 crores. I'm talking about this restructure, you said like payment happened later. So how much of money have you already received from that, yes?

So this is as per the restructuring schedule. I think let me see if I can give you. I do not have the exact schedule right now. But this is restructured over a 1.5-year period. and restructure -- like that. The entire money doesn't come upfront. It is restructured to come in bits and pieces over a definitely defined time frame. So all those recoveries are coming in. But the first, as per the restructuring, the first payment, which came in, which I think I don't have the exact date, I think it was December -- it was in December. But right now, the auditors feel our contention is that since the Executive Committee of the Board restructured it on the 1st of May 2025, with the repayment stashed starting from December till up ahead, we should take it as restructured from the 1st of May. But somehow they have a different point of view. There's a discussion being on. And let's see if it gets resolved, it will come into Q2.

So we have received the amount after the restructuring in [indiscernible] but nothing is over due.

Got it. Perfect. And the other question was on yields. So particularly the pressure on margins of 22-odd basis points with cost of funds remaining stable, what is actually leading to it? Is it -- we have shown that yield on advances have declined. But was there a bit of pressure? And since we have increased the maybe the bid out rates as well. So has that impacted? Because I think you mentioned the INR 1,500 crores of net BT out and what I recollect last quarter was INR 1,150 crores. So he was a BT our also slightly higher during this quarter compared to that of the last quarter and creating some pressure on yields?

BT out definitely. But BT out and parcel of this business. Last year, it was particularly severe because banks, they are linked to reports, the moment RBI reducing [indiscernible] the entire book gets restructured to lower rates, whereas in HFCs, we have a relook depending on cost of funds, credit cost and all other things. So we do take our time introducing the rates across the board. So definitely, there was a BT-out pressure last year if you see Q2, Q3 and Q4 of last year, almost [ INR 34,000 crores ] of BT-out took place. Current year, our BT out -- our net BT out, as I said, is INR 1,500 crores, slightly up from about INR 1,300 crores, INR 1,200 crores, INR 1,300 crores, which is there. But that is expected, that is expected, right? So nothing to do on that. Though, of course, we have outlined our strategy to probably not let customers go. We have certain rewriting rates in place there's a defined policy on rerating. Now we are flexible now. This year, we intend to be flexible with the policy in the case of prime customers, very good customers, big ticket customers and we are willing to bend our policy to accommodate lower rates of interest. Because in the BT-out, what happens, a higher rate loan goes out and what the competitor organization offers is the lending rate, which is much, much lower than the sort of rewriting rate. So again, we are flexible on that. We have formulated a policy where we are going to -- we are tracking each and every big bit BT-out negotiating with the customer, talking to the customer. And wherever we feel that the customer is a prime customer, a strong customer, a big ticket customer, we are offering in rates, which are I would say, comparable to what is getting elsewhere. So that is one thing that we are doing. And the other reason for a decrease in margins, I think -- we had one last year, somewhere on [indiscernible] April, we had a complete 25 basis points cuts on the overall book. So that was not factored in, in Q1 of last year because as per our rules, 1/3 of the book gets repriced immediately, 2/3 get replaced after the first month of the next quarter, which that means last year happened in 1stt of July or INR 3 lakh crore book, probably INR 1 lakh crore that will be immediately in April. The remaining INR 2 lakh crores got replaced from the 1st of July. So that would also have an impact on the Q1 year-on-year -- a decrease in the spreads and the NIMS.

The next question is from the line of [indiscernible].

Just some bookkeeping questions. What's the overall disbursement -- incremental disbursement yield in the first quarter?

In the first quarter of this year, our disbursement was INR 15,014 crores as against [ INR 13,160 crores ] in the first quarter of last year.

I mean is it the new you on these disbursements [indiscernible] the yield on the disbursement this quarter.

The NIM?

[indiscernible] .

Okay. The figures have given you INR 15,014 crores, up by 14.5%. This is in line with our expectation of 15%, which we had guided during the Q4 conference -- Q4 results conference call. So we are on track, 15% growth in Q1. We are on track of what we expected. Going forward, in Q2, we expect this momentum to continue, and we expect the company to register a 15% growth in Q2.

Sorry. I mean discussion yield as interest yield on INR 15,000 crores of spent was the, yield on that.

You're talking...

[indiscernible]

Mr. Gao, may we request you use a microphone while asking a question, you are not that audible.

The incremental response once this quarter, as you INR 15,000 crores this quarter, what on average is that?

So you mean an incremental gain on whatever we have dosed this quarter. Is it?

Yes. On average.

So incremental yield for this quarter is 8.25%.

8.25%. And your overall portfolio yield on is 9.12% right?

Now we could not get you.

So the incremental yield is [indiscernible]And if your overall portfolio book yield, that book yield is 9.2% as of 1Q '27, shouldn't the margin continue to compress because it's 100 basis points cap between incremental outlook [indiscernible]

Yes. And cumulative and is 9.12% as of 30 June '26.

Yes. So there's 100 basis points gap between your incremental yield and your book yield cumulative yield. So how far are we keeping the margin maintain the margin going forward? -- because as you dispose more and the repayments come, the book yield will turn down for 1 incremental yield, right?

So no doubt about it. There was some pressure on our cost of borrowing. But our strategy, definitely, we are now focusing on the other housing loan portfolio, which is giving all [indiscernible] extra as you compare with the IHM portfolio. So -- and that portfolio is growing at around 20% in this quarter. So we are hopeful that IHR, which has grown by 15% this quarter and portfolio diversification from IHL to OHL, other than housing no means your LAP and LRD, that is the high-yielding segment. So I think that segment will compensate our overall yield for the year.

The next question is from the line of Abhishek from HSBC.

So can you tell me last year, and I'm talking about disbursements only. Last year, in project finance, we had a disbursement of roughly INR 2,000 crores. This year, is there a target or sanctions pipeline which you follow? Or is it more transactional? And when it comes through your team, that's when you decide whether to underwrite or not? So how do you approach this?

Well, yes, last year, INR 2,000 crores of disbursement, a very muted year as far as developer book was concerned. This year, in the Q1, in Q1, we have disbursed about INR 872 crores. There is a growth of more than 450% target for the year and the book is INR 4,000 crores. We are aiming at INR 4,000 crores. But we are expecting somewhere around about INR 7,000 crores to INR 8,000 crores. And the process is transactional. Yes, as and when we borrowers approach us for loan, we do the credit appraisal, see what rates they are asking and then take a call whether from the credit perspective, risk perspective, which is global and also from the rate perspective, is it in our interest to offer them that loan at whatever rate they have.

Sir, is there a sanctioned pipeline? Or is there no sanction pipeline?

There would be some cases which were sanctioned last year because the developer finance is basically construction finance, right? And this is dependent on the stage of construction. So any building coming up in the initial stage, plant level construction complete, probably with diverse, what, 25% to 30% of the entire sanction and as and when the construction...

Is it INR 7,000 crores was the sanction is it?

Last year -- No, no, last year, the sanction was close to INR 5,000 crores. But then sanction does not translate into disbursement, right? We are in supposing we sanction a loan at 9.5% to say, so. in Bangalore. So from our point of view, it is sanctioned, but Soba is supposing is asking me. And probably I'm not okay with it. So that sanction automatically, I would say ...

But there would be some -- I understand that competitively, things change. But with -- if you have a sanction today, there would be some predictability of it converting into a disbursement comes up?

So if a loan is sanctioned, of course, there are some predisbursement conditions, if something is required and we send that only when we...

So the reason I'm asking, sir, just to explain the reason I'm asking is that you have a INR 4,000 crore target for the year. I just want to know what is the predictive like you will achieve INR 4,000 crores or that is dependent on when that disbursement comes up and whatever commercial terms are acceptable or not? So it may not be INR 4,00,000, it may be INR 2,000 crores, you can't say right now.