Prabhudas Lilladher has retained a 'Hold' rating on LIC Housing Finance with a Rs 520 target, following Q2 FY27 results. While disbursements grew 11%, the lender faces headwinds from high customer prepayments and stiff competition that are impacting loan book growth and profit margins.
Prabhudas Lilladher has maintained its 'Hold' rating on LIC Housing Finance, setting a price target of Rs 520 per share. This cautious stance follows the release of the company's second-quarter results for the financial year 2027, which highlighted both a steady increase in new business and persistent challenges that are limiting overall expansion.
In the quarter ended September 2026, LIC Housing Finance reported that new loan disbursements grew by 11.1% compared to the same period last year. However, the total loan book expansion was more muted, growing by only 5% to reach Rs 3,219.6 billion. This difference suggests that while the company is adding new loans, it is also seeing a significant number of existing loans being paid off early. Prepayment rates remain elevated at approximately 12%, which is higher than the typical levels seen in previous periods and continues to cap the company's ability to grow its total loan book.
To drive future expansion, the company's management has set a target for Assets Under Management (AUM) growth of 8% to 10% for the current fiscal year. The strategy involves pivoting toward segments that offer higher returns, such as Loan Against Property (LAP) and project finance. However, analysts at Prabhudas Lilladher have maintained a more conservative outlook, projecting AUM growth of 6% to 7% for FY27 and FY28. This cautious view accounts for the potential risks that come with expanding into these newer, higher-yielding loan segments, which could impact the quality of the company's assets.
Profit margins remain another key monitorable. Analysts expect the company’s Net Interest Margins—a measure of profitability from lending activities—to moderate, settling between 2.5% and 2.6% over the next two fiscal years. This anticipated decline is driven by the rising cost of funds and intense pricing competition from traditional banks, which makes it increasingly difficult for the lender to maintain its interest rate spread.
Investors may watch how the company manages the balance between pursuing its new growth strategy and maintaining asset quality in the face of stiffer competition. Future updates on the actual growth rates of the AUM and any trends in margin stability will be essential to understanding whether the company can successfully navigate these sector pressures.