LIC Housing Finance Ltd, the second largest housing finance company in the country, has run into some financial headwinds of late. Even so, its intrinsic value makes it unlikely that its parent organization, Life Insurance Corporation of India (LIC) will want to seriously dilute its stake in its subsidiary.

During FY21, LICHFL reported total income of Rs 19,880 crore and net profit of Rs 2,741 crore, translating into an EPS of Rs 54.32 on its then equity share capital of Rs 100.99 crore of a face value of Rs 2 each. In the first nine months of the current fiscal, its total income has reached Rs. 14,669 crore (PY Rs 14,900 crore) with net profit of Rs 1,172 crore (PY Rs 2,335 crore), giving an EPS of Rs 23.23 (PY Rs 46.27) on its enhanced equity share capital of Rs 110.08 crore. The earnings per share for the current fiscal’s three quarters are Rs 3.41, Rs 4.54 and Rs 15.28 respectively.

One of the major reasons for the steep fall in profitability of Rs 1,163 crore (49.80%) is a higher level of impairment on financial instruments and net loss on derecognition of financial instruments, which has shot up from Rs 340.42 crore to Rs 1,811.31 crore (408% up) during the period ended December 2021. In fact, it was Rs 1,317.61 crore for the full FY21.

The company has earned a net interest income of Rs 3,897.32 crore during the nine months of this fiscal against Rs 3,739.60 crore in the previous year (up 4%). Similarly, the net interest margin has remained almost flat at 2.42% (against 2.36%). The yield on advances has gone down from 9.51% to 8.62%. However, it has scored on its weighted average cost of funds, which has also gone down from 7.25% to 6.69%

COST CONTROL

This is positively reflected in the reduction of finance cost from Rs 11,058 crore to Rs 10,600 crore. The outstanding oan portfolio of Rs 2,43,412 crore is up by 10.54% compared to Rs 2,20,197 crore in the previous year.

During the current Q3, through a preferential issue of 4.54 crore equity shares to promoter LIC at Rs 514.43 per share (including Rs. 512.43 towards the premium), the company has raised Rs 2,335.51 crore, whereby its paid-up capital has gone up by Rs 9.09 crore to Rs 110.08 crore and shareholders’ reserves by Rs 2,326.42 crore to Rs 22,826.86 crore. As a result, the promoter’s shareholding has gone up by 4.93% from 40.31% to 45.24%. Interestingly, the issue price has been on the higher side, especially when compared to its current market price of Rs 362 and book value of Rs 402.35 as of March 2021.

Amongst the public shareholding of 54.76% as of endDecember 2021, mutual funds are at 9.61%, foreign portfolio investors at 23.46%, and FIs, banks and insurance companies combined hold 5.13%. These three categories constitute 38.20% while the remaining 16.56% is with others.

The company’s subsidiaries include LICHFL Care Homes Ltd, LICHFL Financial Services Ltd, LICHFL Trustee Company Pvt Ltd and LICHFL Asset Management Company Ltd. Its two associates are LIC Mutual Fund Asset Management Ltd and LIC Mutual Fund Trustee Pvt Ltd.

Promoter LIC is itself all set for an initial offering of about 10% to the public and will soon become a listed entity, perhaps with the largest market capitalization in India. Hence, it would be interesting to watch its long-term strategy with regard to its holding in LICHFL — whether it continues with its present stake in its housing finance arm or dilutes it partly or fully. What will definitely weigh in LIC’s calculations is that LICHFL has high intrinsic value and strong financials.