LIC Housing Finance (LICHF) posted a stronger-than-expected Q4FY25 performance, prompting Prabhudas Lilladher to maintain its BUY rating and raise the target price from Rs 650 to Rs 725, reflecting a potential 17% upside from the current market price of Rs 621. The earnings beat was underpinned by improved margins, stronger asset quality, and lower credit costs. With normalization across regional markets and a push into higher-yielding segments like affordable housing and project finance, LICHF appears poised for a rerating, although net interest margins (NIM) remain a key variable in a softening rate environment.

Q4FY25 Earnings Surpass Estimates on NII Strength and Controlled Provisions

LICHF's net profit for the quarter stood at Rs 13.7 billion, a 7.2% beat over estimates. The earnings uplift stemmed from a confluence of drivers:

Net Interest Income (NII) rose 8.5% above projections to Rs 21.7 billion, aided by a 16 basis point QoQ increase in NIM to 2.86%, thanks to a reduction in funding cost.

Other income also beat expectations, hitting Rs 1.66 billion, supported by a significant Rs 1 billion recovery from a written-off account.

Operating profit outpaced forecasts at Rs 18.8 billion, up 7.7% sequentially.

Credit costs were subdued at Rs 1.1 billion, lower than the anticipated Rs 1.5 billion, while gross Stage-3 assets improved by 28bps QoQ to 2.47%.

Provision Coverage Ratio (PCR) climbed to 51.2% from 47.5% in Q3.

Margins Benefit from Falling Cost of Funds

Funding cost dynamics played a vital role in margin expansion. Incremental borrowing costs fell to 7.66% in Q4FY25, and management indicated further relief with a reduction to 7.3% in Q1FY26.

Lending rates were adjusted accordingly, with the Prime Lending Rate (PLR) lowered by 25bps in line with rate transmission.

Despite an expected 75–100bps repo rate cut, the full benefit on PLR will phase in gradually due to quarterly resets.

NIM guidance for FY26 stands at 2.6–2.8%, while analysts model a conservative 2.55%, factoring in rising competition from banks in a declining interest rate landscape.

Double-Digit Loan Growth Targeted for FY26

LICHF is eyeing double-digit loan growth in FY26, especially in high-yielding segments:

Disbursals rose 7.3% YoY, aided by normalization in southern markets and a strategic focus on segments like Loan Against Property (LAP), Lease Rental Discounting (LRD), and affordable housing.

Affordable housing disbursals were modest at Rs 4.32 billion in FY25, well below the Rs 10 billion target. However, the FY26 target has been doubled to Rs 20 billion.

Project loan disbursals are projected at Rs 100 billion in FY26.

Execution in these verticals will be critical to achieving a guided AUM CAGR of 7.5% over FY25–FY27.

Asset Quality Strengthens Further

Asset quality improvement was a key positive:

Stage-3 loans dropped to 2.47%, and management expects to reduce gross NPAs to below 2.2% in FY26.

Credit costs are forecasted at 9–15bps, in line with FY25 levels.

Segment-wise, Stage-3 assets were lowest in individual housing loans (1.09%), while non-housing corporate loans saw elevated stress at 24.52%.

Recoveries for FY25 totaled Rs 18 billion, of which Rs 6.15 billion came in Q4 alone.

Financial Performance Snapshot and Valuation

LICHF is expected to deliver steady earnings with improving return ratios, despite NIM pressures.

Stock Levels and Target Price

The stock currently trades at Rs 621, and the revised target price of Rs 725 implies an upside of ~17%. Based on the technical and fundamental outlook:

Support level: Rs 600

Resistance level: Rs 665

Target zone: Rs 725

Entry range for investors: Rs 615–625

Key Risks to Monitor

Despite an encouraging quarter, several factors could influence stock performance:

Pressure on NIMs due to aggressive bank lending in a low-rate environment.

Execution risk in affordable housing and project finance.

Slow resolution in certain large project loans; a Rs 4.5 billion loan is pending restructuring in May 2025.

External macro factors such as further policy rate cuts or regulatory changes in the housing finance sector.

Upward Trajectory Hinges on Growth and Margin Stability

LIC Housing Finance has delivered a fundamentally sound Q4, with improved margins, asset quality, and capital efficiency. Prabhudas Lilladher’s increased valuation multiple reflects confidence in the company’s ability to contain credit risk and expand selectively in profitable verticals. While net interest margins remain a critical watchpoint in a softening interest rate cycle, the stock offers favorable risk-reward at current levels. For investors seeking exposure to the housing finance space with improving quality and scalable opportunity, LICHF remains a compelling bet.