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Hold LIC Housing Finance; target of Rs 475: ICICI Direct

LIC Housing Finance reported operationally healthy numbers with healthy NII growth of 42% YoY on the back of a deflated base Credit growth came in at 16% YoY to Rs 181698 crore while margins remained steady at 2.33% due to passing of rate hikes to customers. However, disbursement growth was flat YoY Loan traction was led by developer portfolio, which increased by a strong rate of 84% YoY to Rs 11364 crore (comprising 6.2% of total loans). Individual loans increased 14% YoY to Rs 170334 crore Headline asset quality deteriorated marginally with GNPA ratio increasing 6 bps QoQ to 1.26%. Gross NPAs in the individual segment surged to 0.93% vs. 0.81% in Q2FY19 Healthy NII growth led to higher net profit at Rs 596 crore, above our estimates.

Accordingly, we expect PAT CAGR of 15.6% in FY18-20E to Rs 2646 crore. We revise our target price higher to Rs 475 (earlier Rs 450) valuing the stock at 1.4x FY20E ABV. We maintain HOLD rating. Impact of RBI guidelines to banks to implement external benchmark for loan pricing of floating loans will remain a key monitorable.