LIC Housing Finance : HFL Q4 FY25 CONCALL TRANSCRIPT

"LIC Housing Finance Limited Q4 FY '25 Earnings Conference Call"

May 16, 2025

Management: Mr. Tribhuwan Adhikari - Managing Director and Chief Executive Officer - LIC Housing Finance Limited Mr. Lokesh Mundhra - Chief Financial Officer -LIC Housing Finance Limited Moderator: Mr. Praveen Agarwal - Axis Capital Limited Moderator: Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Limited Q4 and FY '25 Earnings Conference Call hosted by Axis Capital. 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 conclude. 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. Please note that this conference is being recorded.

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

Praveen Agarwal: Thank you, Manav. Good day, everyone, and welcome to this earnings call. We have with us from the management team, Mr. Tribhuwan Adhikari, MD and CEO; and Mr. Lokesh Mundhra, CFO, to take us through the key highlights of the results, post which we'll open the floor for Q&A. Over to you, Adhikari, sir, for your initial remarks, please. Tribhuwan Adhikari: Yes. Thank you, Praveen. Very good morning to all of you, and welcome to the post earnings conference call of LIC Housing Finance Limited for Q4. As you are aware, LIC Housing Finance Limited declared its Q4 results yesterday. Now before I start the highlights of the Q4 results, I would like to outline a few developments in the economy over the last quarter. The Reserve Bank of India's MPC enacted two successive 25 basis point reductions in the repo rate during 2025, lowering it from 6.5% to 6.25% in Feb and further 25 basis point cut from 6.25% to 6.0% in April.

Despite these cuts, liquidity conditions remain constrained in Q4 of financial year '24-'25, Jan to March, contributing to higher market yields. To address this, the RBI introduced multiple liquidity boosting measures in March '25, including a US$10 billion INR buy and sell swaps, then there were OMOs worth INR1.8 lakh crores and variable repo rate options. The cumulative 50 basis point rate cut, combined with the improved liquidity from these interventions led to a decline in market yields during Q1 of the current fiscal, that is '25-'26.

And due to an increase in the borrowing costs, the company, LICHFL increased its benchmark lending rate or LHPLR as we call it, by 10 basis points with effect from 1st January 2025. And subsequently, after the repo rate cut, the PLR was reduced by 25 basis points with effect from April 28, 2025, which affected the entire portfolio. With this, we present the financial highlights of the company for the quarter as follows: the total revenue from operations at INR7,283 crores as against INR6,936 crores for the corresponding quarter of the previous year, registering a growth of 5%.

The total loan portfolio stood at INR3,07,732 crores as against INR2,86,844 crores as on 31st March 2024, reflecting a growth of 7.38%. The individual home loan portfolio stood at INR2,61,562 crores as against INR2,44,205 crores, up by 7% and this individual home loan portfolio comprises 85% of the total portfolio. Total disbursements for the quarter were INR19,156 crores as against INR18,232 crores for Q4 of FY '24, up by 5%.

Out of that disbursements in the individual home loans, INR15,383 crores were individual out of this total disbursement of INR19,156 crores, INR15, 383 crores was against -- as against

INR14,300 crores for Q4 of FY '24 were individual home loans, which was up by 8%. Project loans were at INR875 crores compared with INR1,501 crores in Q4 of FY '24. On the net interest income, the NII was INR2,166 crores for the quarter as against INR2,000 crores for Q3 of FY '24. So sequentially, there was a growth, but it was INR2,238 crores for Q4FY '25, so there was a decrease.

Net interest margins for the quarter stood at 2.86% as against 2.70% of Q3 of FY '25 and 3.15% of Q4 of FY '24. PBT stood at INR1,769.58 crores as against INR1,476.18 crores, registering a growth of 20%. PAT registered a growth of 25% approximately. It stood at INR1,367.96 crores as against INR1,090.82 crores. And for the year, the PAT stood at INR5,429.02 crores as against INR4,765.41 crores, showing a growth of 14%. Dividend declared by the company was 500%. Again, that is INR10 per share, face value being INR2.

In terms of asset quality, the Stage 3 exposure at default stood at 2.47% as against 3.31% as at the end of 31st March 2024 and 2.75% as on 31/12/2024. So the asset quality has been continuously improving. Total provisions as on 31/3/2025 were INR4,899 crores with Stage 3 PCR, the provision coverage ratio coming to 51%. On the recovery front, with the continuous and focused efforts, we have witnessed a significant and consistent reduction in delinquency levels during the last year.

Also, during the year, we have made a technical write-off of INR171 crores during Q4 and INR1,368 crores during the entire financial year. On the funding side, the cumulative cost of funds stood at 7.73% as on 31/3/25 as against 7.78% as on 31/12/24. So sequentially, there was a decline of 5 basis points. And as compared to last year, which was at 7.76%, there was a decline of 3 basis points. Incremental cost of funds stood at 7.73% for the full year and 7.66% for the quarter.

Net interest margins for the year stood at 2.73% as against 3.08%. During the last quarter, the interest rates were elevated due to tight liquidity conditions. However, we managed to keep our interest rate expense flat in compared to Q3. We also renegotiated on some of our outstanding borrowings. These were the earnings highlights. And with this brief introduction, I would like to invite you for your queries. Thank you.

Moderator: We have our first question from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead. Mahrukh Adajania: Sir, I had a couple of questions. You did say that you have changed your PLR as of 1st April by 25 basis points. So now the entire individual loan book has repriced and -- is that correct? Tribhuwan Adhikari: Yes, it is correct, Mahrukh. Mahrukh Adajania: Okay. And sir, in terms of cost of funds, which was 7.66 incremental in the fourth quarter, what is it as we speak today? Because the yields have already... Tribhuwan Adhikari: Cost of funds have come down after the repo rate thing around about 7.3. Mahrukh Adajania: So the increase was 7.3. So basically, 7.66 has gone down to 7.3 and the yield has gone down on the individual home loans by 25 basis points. And sir, I just wanted to understand, I know you had explained even on the last call that how soon do you pass on the repo rate cuts? So what's the pricing mechanism? Do you pass on the previous 25 basis points, but there was one more 25 basis points, when will that be passed on to existing customers? Tribhuwan Adhikari: No, Mahrukh, like banks -- many of the banks, the housing loan rates are linked to the repo rate. And so automatically, wherever there is a repo rate cut, the benefits are automatically passed on to the borrowers. But in our case, we don't have that. We have something called the LHPLR or something -- a PLR, we can call it. We do assess because ultimately, the -- how much we are able to pass on relies primarily on our borrowing costs, right?

So if we see that the borrowing costs are transmitted, the reduction in repo rates are also transmitted to us in the form of lower borrowing costs, we do take a call and pass on the reduced borrowing costs to the borrowers. So that is a call we take from time to time. So it is not automatically linked to the repo rate that as soon as the repo rate comes down, we have to bring down our PLR.

Lokesh Mundhra: Good morning, Mahrukh, I am Lokesh Mundhra, CFO. I understood your question that this reduction in lending rate or -- so that will be effective on a quarterly basis. So this quarter, it will not be effective and next quarter is from 1st of July, the effect will come. Mahrukh Adajania: Okay. So the next repo rate -- so there were 2, one has been passed on and one will be passed on in July, that way. Lokesh Mundhra: No, no, no. Tribhuwan Adhikari: No, no. We are not confirming that. We'll take a call in July as to the -- what -- how our borrowing rates have kind of leveraged as compared to the rate cut because in June -- again, in June, there's an MPC in June, we are -- I'm personally expecting a rate cut of another 25 basis points. So we'll take a call in June -- we'll take a call in the month of June. This rate cut, which we have effected in April, this will automatically be passed on from the 1st of July. Lokesh Mundhra: Correct. Tribhuwan Adhikari: Because many of the loans get reset every quarter. There are some loans which get reset every month. So that is a slightly lesser smaller percentage. So that -- those loans would have already been reset. A majority of the loans get reset quarterly. So those would be reset on the 1st of July. Lokesh Mundhra: Correct. Mahrukh Adajania: Got it, sir. Very clear. But just historically, if you see in the earlier rate cut cycles, of course, we did not have repo linkage then even for banks. How long does it take to transmit cuts? So if, say, RBI is cutting rates today by 25 basis points, historically, how long has it taken before that reflects in your cost of -- fully reflects in your cost of funds? And is then fully passed on to borrowers? Any such data you could share? Tribhuwan Adhikari: I don't have any specific data as to when we have passed on the rate cuts in the earlier cycles, etcetera. But usually, I would say it would be -- I would think, a 3-month cycle because as it is, the reset is quarterly in most of the loans, almost majority of the loans the reset is quarterly. So normally, it takes about 3 months to pass on the rate cuts to the borrower and the rate to get affected for the borrower to feel the effect of the rate cut. Moderator: We have our next question from the line of Sameer Bhise from Dymon Asia. Sameer Bhise: Congrats on a good set of numbers. Sir, just kind of probing on the whole interest rate things again. Given that we have partly passed on the rate cut on the asset side right now, do you think there is a case that as we go down the rate cycle, there will be a period when in the at least in first half of FY '26, we could have a bit of a compression on spreads, which is probably more pronounced than before and then hopefully, we recover towards the end of the year. Is this the right way to think about it? Tribhuwan Adhikari: Well, Sameer, yes, the interest rate scenario right now is very, very volatile with rate cuts happening and transmission of the rate cuts to the borrowers and again, transmission of the rate cuts in the form of borrowing costs. It's all very, very, I would say, murky right now. But yes, the trend has clearly seen from the actions of RBI and from the market expectations that the trends are for a lower revision in the repo rates. But we are looking at how it gets transmitted to the borrowing costs.

As I said, the borrowing costs right now at 7.3% down from around about 7.66%. So almost 30 basis points out of that 50 basis point rate cut has been passed on to us. We'll have to take a call. Yes, margins are going to be under pressure. I'm very aware of this, and it will require very thrift handling on our part managing -- in managing the, I would say, the interest rate scenario so that we do not lose out on the spreads and the margins. I feel we should be able to handle that. We have ended the year with a NIM of 2.72%. I think we should be in that region. So my guidance for the year...

Sameer Bhise: On a full year basis -- so this is on a full year basis, we ended at 2.72%, 2.73%. How should we look at probably -- if you could give some sense on how the transition could be through the year? Tribhuwan Adhikari: Yes, through the year, my sense would be -- worst-case scenario would be probably at 2.6%; best case scenario, probably at 2.9%. So my guidance would be between 2.6 -- sorry, 2.6% and 2.8%, not 2.9%. Moderator: We have our next question from the line of Gaurav Kochar from Mirae Asset. Gaurav Kochar: Sir, again, probably a little bit more on margins. So you called out that there has been a PLR reset of 25 basis points. And you also mentioned that the incremental cost of fund, which was 7.66% in Q4 has come down to 7.3%. So is it fair to believe or is it correct way to look at it that whatever benefit you get on your cost of funds, only that will be transmitted on the PLR. So let's say, if you take a call on the further PLR rate cuts that you'll be doing, that will be solely dependent on how much funding cost benefit you're getting.