LIC Housing Finance : HFL Q4 FY24 CONCALL TRANSCRIPT

"LIC Housing Finance Limited

Q4 FY '24 Earnings Conference Call"

May 16, 2024

MANAGEMENT: MR. TRIBHUWAN ADHIKARI --MANAGING DIRECTOR AND

CHIEF EXECUTIVE OFFICER - LIC HOUSING FINANCE

LIMITED

MR. SUDIPTO SIL --CHIEF FINANCIAL OFFICER - LIC

HOUSING FINANCE LIMITED

MODERATOR: MR. PRAVEEN AGARWAL --AXIS CAPITAL LIMITED

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Moderator:Ladies and gentlemen, good day, and welcome to LIC Housing Finance Q4 FY '24 Earnings Conference Call hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you, and over to you, sir.

Praveen Agarwal: Yes. Thanks, Steve. 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; and Mr. Sudipto Sil, CFO, to take us through the key highlights of the results post which, we'll open the floor for Q&A. Over to you, sir, for your initial remarks. Thank you.

Tribhuwan Adhikari: Yes. Thank you, Praveen. Good morning, ladies and gentlemen, and welcome all of you to the post earnings conference call of LIC Housing Finance Limited. As you are aware, we declared our Q4 results yesterday.

Before I start the highlights of Q4 results, I would like to outline a few developments in the economy in the last quarter. As expected, the RBI continued with the pause in the policy rates in Q4 also, and expectations of the rate cuts are being pushed further now, largely due to global data cues.

The liquidity conditions in the quarter was also kept at tighter levels to control the inflation. Tighter liquidity conditions along with geopolitical tensions and volatility in the global data points, kept the interest rates at elevated level during the quarter under review. The overall demand scenario for housing loans remained steady.

Further, as informed in the Q1 and Q2 conference calls, the company has undergone through transformational changes during last year, including technological changes as well as opening up of new marketing offices and the introduction of special cluster offices for credit appraisal process and as a result, we witnessed significant improvement in all areas of operations of the company. In FY '23, '24, the year has been the best in terms of margin and profitability with record PAT and NIM.

Now I would like to share the key financial highlights of the quarter, which are as follows: total revenue from operations at -- grew from INR6,415 crores to INR6,936 crores for the corresponding quarter Q-on-Q growth of 8%. Outstanding loan portfolio stood at INR286,844 crores against INR275,047 crores as on 31st March '23, reflecting a growth of 4%. The individual home loan portfolio stood at INR244,205 crores, as against INR228,730 crores as on 31st March of last year, up by 7%. And this individual home loan portfolio comprises 85% of the total portfolio of the company.

Total disbursements for the quarter were INR18,232 crores as against INR16,027 crores in the corresponding quarter last year, a growth of about 14%. Out of these disbursements, in the

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individual housing loan segment, we disbursed INR14,300 crores as against INR12,406 crores of Q4 of FY '23, up by 15%.

Project loans were at INR1,501 crores compared with INR1,554 crores in Q4 of last year. The last quarter of FY '23, '24 was the best quarter of the year in terms of disbursement with sequential growth as well as Y-o-Y growth.

On the interest income front, NII, net interest income, was INR2,237 crores for the quarter as against INR1,990.30 crores for the corresponding quarter of FY '23, a growth of 12%. Net interest margins for the quarter stood at 3.15% as against 2.93% in the previous quarter -- sorry, in the previous quarter of FY '23. NIM for all the quarters of last year has been consistent and in the range of 3% or above.

PBT, profit before tax, for the quarter stood at INR1,476.18 crores as against INR1,444.78 crores, a marginal growth of 2%. Profit after tax for the quarter stood at INR1,090.82 crores as against INR1,180.28 crores for the same period previously. And PAT, profit after tax, stood at record high for the year, year-on-year. PAT for FY '23, '24 stood at INR4,765.41 crores as against INR2,891.03 crores, showing a significant growth of 65%.

Yesterday, the company declared a dividend of 450%, that is INR9 per share. In terms of asset quality, the Stage 3 EAD exposure at default stood at 3.31% against 4.37% as on 31st March of last year, and 4.26% as at the end of the previous quarter, that means 31 December '23, reflecting sequential as well as Y-o-Y improvement in the same.

Total provisions as of March 31, '24 stood at INR6,270 crores, with Stage 3 provision coverage ratio at 51%. On the recovery front, with continuous and focused efforts, we have witnessed a significant and consistent reduction in delinquency levels during the last year. We have also made a technical write-off INR1,080.57 crores during Q4 of FY '24. And overall, the total technical write-off during the financial year '23 '24 stood at INR2,005.62 crores.

On the funding side, we have witnessed an increase in the overall cost of funds by 13 basis points during last year from 7.63 to 7.76 and an increase of 6 basis points during the last quarter from

7.70 to 7.76. Incremental cost of funds stood at 7.84 for the full year and 7.90 for the quarter. Net interest margins for the year stood at 3.08% against 2.41% last year. During the last quarter, the interest rates were at elevated levels due to tight liquidity controls.

	However, we managed to keep our interest expense flat in comparison to Q3. We had also -- we
	also renegotiated on some of our outstanding borrowings. The last year was a year of
	consolidation as well as one where several new initiatives were launched and implemented.
	Also, there was a significant focus on the recovery effort, which have led to improvement in
	asset quality. With this foundation, I believe we look forward to a strong financial year '25.
	With this brief introduction, I would like to invite you for your queries. Thank you.
Moderator:	The first question is from the line of Marukh from Nuvama.
Marukh:	My first question is on the write-offs, was it on builder loans?
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Tribhuwan Adhikari:	Mahrukh, ma'am, the write-off is on all loans builder as well as IHL, which are provided for
	100%. That means wherever there is a provision of 100%, these loans are eligible for write-off.
	So it would be a mix of both, not specifically builder loans, it would be a mix of both builder as
	well as retail IHL, individual home loans.
Marukh:	On the repossessed assets are part of Stage 2?
Sudipto Sil:	No. Actually, repossessed assets are Stage 3.
Marukh:	They are Stage 3. So the Stage 2 provision has also gone up. ECL has also gone up a lot. That's
	why I asked. Any explanation? I mean, any reason for the Stage 2 ECL being higher Q-o-Q?
Sudipto Sil:	No, for the Stage 2, you are asking?
Marukh:	Yes, Stage 2.
Sudipto Sil:	Yes. Stage 2, the management overlay -- it is because of the management overlay, it has been
	increased.
Marukh:	Okay. And any DTA reversal because the tax rate is also higher?
Sudipto Sil:	As far as the tax rate is concerned, it is basically because of some old, I would say, DTL for
	earlier years, which we have taken effect this year, total amount is INR127 crores approximately.
Marukh:	Okay. So it's the earlier years DTL.
Sudipto Sil:	Yes.
Marukh:	And it will normalize to 19%, 20% going ahead?
Sudipto Sil:	Yes. 19% to 20%.
Moderator:	The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Abhijit Tibrewal:	Again, congratulations, I think, I mean, this has been a good quarter for us, except for maybe
	some one-offs and maybe slightly higher write-offs. Sir, I mean I had 2 questions here. NIM is
	something that we are kind of trying to wrap our heads around. I mean as a franchise, we were
	not a business model which big NIMs in excess of 3%. If you could help us understand what is
	it that has changed in the last 1 year that is allowing us to deliver these kind of NIMs, given that
	if you look at the sectoral level across HFCs, there seems to be some transient pain, which is
	there in the margins. Yields have largely maxed out. Cost of borrowing continues to rise. So that
	is one thing if you can help us understand as well as kind of supplement it with your NIM outlook
	for the next year. That is one.
	And the other thing is sir, I mean, your Stage 3 has kind of declined by almost INR2,500 crores.
	You just explained in your opening remarks that about INR1,100 crores of technical write-offs
	that you took during the quarter. So where is the other, I mean, decline that we have seen in
	Stage 3, Stage 2? There were more organic resolutions during the quarter.
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Sudipto Sil:	Yes, your second question first, yes, there have been write-offs to that for about INR1,000 crores
	in the quarter. But despite that, we have been able to also work on the recoveries and which was
	a focus area for the last 2 to 3 quarters. And we are also, I would say, given that commitment in
	the previous call, that we will certainly bring down the NPLs in the Stage 3 accounts. And there
	was a decent visibility because we were working on those accounts for a fairly long period of
	time. So that has now come through and that has given the movement that you have just referred.
	As far as your first question is concerned regarding margins. This is the fifth quarter in a row
	back to back that we have delivered margins at 3 or around 3. So this is not a one-off. It has been
	happening for the last 5 quarters, and you would have seen the trajectory ever since we have
	been able to take the benefit of the higher interest rate regime and passed on the rate hikes.
	And to that extent, because of the fact that our liabilities, half of it is fixed and half of it is
	floating, we have certainly benefited from that kind of a model. In fact, going further, if you
	look at and compare the interest expense for the Q4 and compare it against Q3, you will find
	that there is hardly an increase. So we have really worked hard and renegotiated, as we
	mentioned in the opening remarks.
	We have renegotiated on some of the borrowings that we had, and we were able to pull down
	the interest expense, which has resulted in creating the gap between the interest income and the
	expense. So that has actually resulted. On top of that, we had a couple of resolutions of some
	high-ticket cases where we were able to collect the interest due on the NPA accounts as well. So
	that is all set.
Abhijit Tibrewal:	Got it. Sir and just one follow-up question on that. I'm just trying to understand this better. So
	what you just explained I mean, resolution of high-ticket cases and you were able to collect
	interest on that, and the same thing that is seen on the liability side, we seem to have benefited
	and maybe done better than many of our peers. So what we suggested this NIM improvement
	that we have seen in FY '24 is more structural in nature, is the conclusion that I just wanted to
	draw.
	And sir, the other question that I had was on the asset quality bit. If I kind of just look at our
	credit cost for the last maybe 3 years, 4 years post COVID, you lean a little bit on the higher
	side. I mean, must compliment you versus maybe FY '22, '23 levels. You have declined in FY
	'24. So now, I mean, are we going to see that same trajectory, what you guided earlier, maybe
	60 basis points in '24 moving towards more 40, 45 basis points for the next couple of years. And
	sir, if you can also give that segmental NPA breakup that you've given.
Tribhuwan Adhikari:	Yes, I will give you the segmental -- I'll first answer that question regarding the credit cost. Yes,
	credit costs, certainly now we have reached a stage where the provisioning cover PCR all Stage
	3 is, I would say, probably one of the best in the peer segment. And we will like to hold it at
	around these levels. This is something that we have indicated, I think, 2 quarters back. So that
	50% PCR, we have achieved.
	As far as the other data points are concerned, you can just note it down. I will quickly read it.
	You can note it down. Individual home loans, IHL, the Stage 3 is 1.48%. It has come down from
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	1.71%. Then nonhousing corporate, it is now 30.65%. It has come down from 40.75%. In the
	nonhousing individual, it is now 5.46%. It has come down from 6.50%. This is I'm talking of
	the December quarter and the current March quarter. And overall, if you add all the pieces
	together, it is currently, the Stage 3 is 3.31% and December, it was 4.26%.
Abhijit Tibrewal:	This is useful. And sir, I mean, the other question that I asked was on the margin, this looks like
	sustainable margins now going ahead?
Tribhuwan Adhikari:	Yes. As far as the margin is concerned, you asked about the margin, right? Yes, margin, I think
	we are now in the territories of 2.7% to 2.9% band can be delivered, I would say, that is certainly
	the outlook comfortably that should come through.
Moderator:	The next question is from the line of Varun from Kotak Securities.
Varun:	I just wanted to ask a question regarding the expenses. If you look at the expenses, they are up
	38% year-on-year and 42% quarter-on-quarter. Is this driven by some wage hike or a pension
	disbursed or is it just from growth of employees?
Tribhuwan Adhikari:	No, Varun, if I talk of Q4, the increase in expenses, which probably led to lower PAT as
	compared to PBT, there were some one-off expenses which we had to take care of in Q4. Just to
	explain further, like we had to make provisions for arrears of wage revision. The wage revision
	of the employees is due now.
	So we have to make provision for arrears of wage revision to the tune of INR32 crores. The
	method of calculation of gratuity also went to change. And because of that, our liabilities
	increased by INR22 crores. A provision for that had to be made in Q4. Then tax expense, DTL,
	deferred tax liability, of past years, we had to increase it by INR227 crores. So slightly -- the tax
	portion is slightly skewed much on the higher side.
	And the other part of it, ECL, yes, we also had to make an additional ECL provisioning of
	INR100 crores to increase our PCR to 50%, slightly higher than 50% as envisaged or as directed
	by our Board. So these are the one-offs that took place in Q4 as a result of which your operating
	expenses are slightly seen at a high level.
Varun:	My second question is regarding the disbursement growth. So right now, we have done about
	15% in 4Q. But is this the sustainable rate that we expect for next year? Or will this go down?
Tribhuwan Adhikari:	No, no, I don't think there's any reason. I don't see any reason why it should go down. Yes, in
	the beginning of the year, we were constrained by these technological changes and the expansion
	in the organizational structure. But now things have stabilized, and whenever we -- of course,
	we opened 44 new cluster offices and 50 new area offices, those delivered in the fourth quarter,
	and I think the fourth quarter was where we should have been right in the beginning of the year.
	So the 15% growth, which we have shown in the fourth quarter, is what we were expecting all
	through. And yes, I'm looking for a double-digit growth in this year. There is no reason why --
	I don't see any sort of hindrances in the market and the demand, which should hold us back.
Moderator:	The next question is from the line of Avinash Singh from Emkay Global.
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Avinash Singh:So I had 3 questions. The first one was if you can just guide for FY '25 growth, particularly because again you are now going reasonably slow on the project finance side. So in that backdrop, what kind of disbursement or AUM growth, you will see for FY '25? That's number one.

Number two was that, okay, you said on margin improvement that there are structural factors and you have done certain work that is helping you deliver better margin. But you are guiding for 2.7% to 2.9% vis-à-vis current year margin of 3.1%? That's second question.

And third question, on Note 10 to your accounts, that INR122 crores gross loan that was classified as asset held for sale to now again loan at about INR18 crores because as you said that it would have gone in Stage 3, what is the additional provision you have taken on this particular asset?

Tribhuwan Adhikari: Yes. Avinash, coming to the disbursement front, yes, the project loan has shown a degrowth. It is not that we have gone slow or anything of that sort. Yes, the project loans, we have been very

• I would use the word, we have been a little bit guarded and conscious about project loans going by the legacy we have, a large buildup of NPAs in projects related to the loans we gave about 5 years back.

	Yes, we are slightly guarded on that, but we're not -- definitely, we're not going slow on project
	loans. Yes, beginning of the year, as I said, we had some issues, which we have to contend with.
	But Q4, we are back on track. So as far as disbursement is concerned, definitely a double-digit
	growth in disbursement. And in the loan book, it's very much on the horizon for FY '25.
	Coming to NIM, I'll ask my CFO, Sudipto to takeover NIMs.
Sudipto Sil:	Avinash, actually, when we indicated 2.7% to 2.9%, that's a wide band, I understand that, but
	the delivery will be closer to the higher end of the band, for sure, and it will be done comfortably.
	We have closed the year with around 3.08% for the full year. There is a possibility that there
	could be a rate cut or something like that. But overall, we are very confident that, by and large,
	the steadiness will be there with a slight variation utmost.
	Then your other question regarding the movement. That was basically in -- because of the Ind
	As change, now we have -- earlier, it used to be in the held-for-sale category. Now it will be
	treated as a part of our overall loan portfolio. So there will be no change in the provisioning
	because earlier also, the assets were provided for. It will be just a reclassification. Whatever
	provision was being held for that particular asset category will now get transferred to the general
	pool. That's all.
Avinash Singh:	But I mean you said it is under Stage 3, and you are indicating nearly 15% cover. So that, I got
	confused.
Sudipto Sil:	Yes. So that was because the Ind AS requires the provision to be made depending upon the
	underlying value of the security, so there will be maybe INR10 crores, INR15 crores deferential
	will be there. That's all.

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Moderator:	The next question is from the line of Gaurav Kochar from Mirae Asset.
Gaurav Kochar:	A few questions. Firstly, on the provisioning. If I look at Stage 1, Stage 2, Stage 3, this quarter,
	I observed that we have increased the cover on each of the three buckets. Going forward, as you
	alluded to earlier that you are satisfied with Stage 3 cover of 50% plus, and we are already there,
	and incrementally assuming the PD, LGD assumptions do not change materially for the other
	buckets and you're guiding for 40 basis points credit cost.
	Where will that come from is my question? Because if I read correctly, I mean, barring write-
	offs, the organic Stage 3 reductions, both in FY '23 and FY '24, were quite healthy. You had
	almost negligible net slippages in each of the 2 years. So going forward, if the net slippage
	number is going to be broadly similar, where will the 40 basis point provision come from?
Sudipto Sil:	So Gaurav, actually the 40 basis points, if you see this year's provisioning trajectory also, so
	what we do is that whenever an asset moves on to a particular stage in terms of hardening of the
	bucket, say, for example, within the Stage 3 itself, if there is further hardening, we increase the
	provisioning there for those particular accounts.
	This year also, we have done the same. For example, whenever a Stage 3 account has remained
	in Stage 3, but it has moved from, say, 2 years to 3 years, so there we have increased the
	provisioning through a management overlay. Finally, the objective is that once it touches 100%
	provisioning, it will be written off.
Gaurav Kochar:	All right, all right.
Sudipto Sil:	Technically, write-offs, again, let me again mention that these are technical write-offs only. All
	follow-up and recovery action continues as it is.
Gaurav Kochar:	Got it. Just 2 questions from this -- 2 follow-up questions. One, of your total INR6,200-odd
	crores ECL, how much is management overlay? And secondly, how big is this technical written-
	off pool now as we speak?
Sudipto Sil:	Technically write-off pool will be closer to INR4,000 crores now. And the manage overlay, of
	the INR6,270 crores will be roughly around INR1,700 crores to INR1,800 crores.
Gaurav Kochar:	All right. Understood. And sir, with respect to the -- I think in the previous call, you alluded to
	some transactions in pipeline for your wholesale book in terms of ARC sales or otherwise
	distressed accounts. So is that something in pipeline for FY '25? And how much broadly rough,
	maybe a ballpark number that we can expect can come in this year?
Tribhuwan Adhikari:	Gaurav, yes, we have taken up ARCs last year. In fact, as a test case, we have put up a large
	account to the ARC. I think they will be coming back. Some 6, 7 ARCs have shown interest, so
	they will be coming back to us. We would be likely taking a call in probably, if not this month,
	in the next month.
	So let's see how it goes, how the ARC goes, and then we'll take it forward. Difficult to give a
	guidance right now because it's not a very clear established practice in the company. We're just
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	testing the waters right now. But definitely, if our experience is good, going by this big account
	we put up on the block, yes, we would be exploring ARC option also for all the sticky and the
	hard loans, which we feel are difficult to sort of resolve or settle.
Gaurav Kochar:	Got it. And sir, just last question on, again, the loan growth or disbursement growth target. If I
	look at full year this year because we had an impact in the first half, the disbursement overall
	was INR58,000-odd crores this year. Next year, if you're targeting a double-digit growth, I'm
	assuming a 12% number here, if we have to achieve that, the overall disbursement needs to be
	closer to INR70,000-odd crores for next year. So are we confident of delivering, let's say, FY
	'25 INR70,000 crores kind of disbursement?
Tribhuwan Adhikari:	Yes. Gaurav, no reason. Right now, honestly, if you ask me, there is nothing, as I said, which
	should hold us back from achieving those numbers you've just quoted. Yes, we are targeting
	that.
Gaurav Kochar:	Great. Great, sir. Congrats on the quarter, and good luck for the coming year.
Tribhuwan Adhikari:	Thank you. Thank you, Gaurav.
Moderator:	The next question is from the line of Mohit Jain from Tara Capital.
Mohit Jain:	Congrats on a good number, sir. I just wanted to understand on the NIM part. If I'm just
	comparing from December to March, incrementally I'm seeing the cumulative interest yield has
	gone down and the cost of funds have increased, both in the form of, as on date, the cost of fund
	as well as incremental cost of fund. So then is the increase in NIM purely because of the recovery
	from the NPA cases? Or is there something else to it?
Sudipto Sil:	No. If you look at it, again, I would like to repeat what I just said in the previous question.
	Interest costs have not increased, but interest income has increased.
Mohit Jain:	But if I am seeing, in interest, the yield or the incremental part of that...
Sudipto Sil:	I'll come to that. But if you look at it that way, the interest expenses have been absolutely flat,
	no increase. Interest income, on the other hand, has shown some increase because of the increase
	in asset book. whatever little it is, but it has come through. So that has actually expanded the net
	interest income.
	As far as the yields and cost is concerned, that is actually the number which exists on the last
	day of the quarter. It does not reflect the entire quarter. How you will calculate? If you just take
	the interest expense and the interest income, which are the audit numbers available along with
	our financials, and you also have the opening and closing book, that will give you a very good
	understanding of the trajectory, which has absolutely shown an increase.
Mohit Jain:	Okay. And sir, just to reconfirm, you're saying for the next year loan growth also we are
	expecting the AUM to grow in double digits?
Tribhuwan Adhikari:	Yes, yes, Mohit.
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Moderator:

The next question is from the line of Shubhranshu Mishra from Phillip Capital.

Shubhranshu Mishra: Two questions. The first one is on the various appointments that we have done. So a lot of senior heads have come in from LIC who are in their late 50s, and would be probably sent to Housing Finance business. So my question is that why are we not appointing professional managers in the regional zones or zonal managers to run the Housing Finance business instead of taking it from the parent who are in their late 50s who may or may not have commensurate experience in running a housing finance business? And why are we giving close to INR500 crores dividends when we have so much of bad assets? So if we can conserve on that, we can probably add to our management overlay.

Second is, at a point in time, our gross Stage 3 on the corporate book was 45%, implying that 50% of the book was bad. So why don't we just run it down and we say that, okay, we will only be a home loan or an individual -- catering to individual, then we don't do corporate assets at all?

Tribhuwan Adhikari: Shubhranshu, coming to your first question on the 6 or 7 new people who have come in from the promoters as senior management, this has been a tradition in this company I don't know since when, but since long, I'm sure. When the promoters do nominate their people as senior management personnel, so this is something which the promoters have to decide on, on getting professional people onboard as you are suggesting, so that was question number one.

And your question number two was -- I think question number three, if I remember, I'll ask you on question two later on. Question three was on our corporate loan book, the project finance book, as you said, where 50% of the book is in Stage 3. Let me tell you why are we are -- and your question was, why don't we completely drop the book and focus completely on individual housing loans?

Let me tell you, if you look at the corporate loan book right now, approximately INR5,000 crores to INR6,000 crores of portfolio still remains there. And if you look at these bad debts or Stage 3 exposure at default of the corporate loan book, this all pertains to loans given during a particular period, if I may be specific between 2016 and 2019.

So it is not that the corporate loan book or loans given during the last 3, 4, 5 years have been bad. Yes, there was a particular period in our sort of history when we did loans which were not probably -- which they probably went bad. So I would not say that we'd give up on this project loan book because we do see demand coming from this sector, and there are a lot of good builders, slightly riskier, I do agree, but of course, margins also are available. So we are not looking at dropping this entire loan book altogether. Yes, we would be cautious. We would be sort of slow. But definitely, we'd like to do business in this segment also.

And what was the second question, Gaurav, I just missed it.

Shubhranshu Mishra: Sir, why are we giving dividend of roughly INR500 crores to the parent? We can add it to the management overlay and not give a dividend at all, right?

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