L&T Finance Ltd. share price target

L&T; Finance Holdings (LTFH) saw moderated loan growth of 14% YoY in focused business book. NIMs+Fees have remained steady at 7.29% (7.33% in 2QFY20). LTFH reported marginal rise in consolidated net profit to `591 Cr vs. `580 Cr in corresponding quarter last...

20 January 2020 LTFH reported 3QFY20 PAT of INR5.9b (+2% YoY), in line with our estimate of INR6.0b. The quarter was characterized by early teens loan growth across focused segments, stable asset quality and core RoE of ~16%. LTFH is expected to report moderate loan growth (7-8%), dragged by the defocused and wholesale book. With stability on cost of funds and growth in high-yielding assets, net income (NIM + fees) is expected to be healthy at ~7%. Overall PAT CAGR is expected to be ~12% with a robust RoE of ~17%. De-focused book declined ~55%/25% YoY/QoQ as the company sold off some DCM bonds without meaningful P&L; impact. LTFH raised INR104b in the quarter, of which ~50% came from term loans and ~35% via NCDs. Cost of funds was largely stable at 8.5%. Disbursements in microfinance have been range-bound at INR25-28b for the past eight quarters, while those in 2W and tractors picked up sharply on a QoQ basis due to the festival season.

A key driver of this has been microloans, wherein the company has expanded into 17 states the book now accounts for 48% of the total rural lending book compared to 35% in FY17. run-down of the de-focused wholesale lending book (structured finance and debt capital markets) and stronger growth in 2W finance and microloans, the share of retail lending (rural + retail housing finance) is expected to reach 43% by FY22. In the tough operating environment over past one year LTFH witnessed asset quality improvement with the GNPL ratio declining 110bp to 6.0% which is commendable. The improvement has been driven largely by wholesale and rural finance, while asset quality in housing finance has been largely stable. The GNPL ratio in the wholesale finance book is at 9% largely due to legacy stressed loans in the thermal power finance book. These loans comprise half of the total GNPLs in this book.

Disbursements were in line with the overall market as Rural, Housing and Infrastructure finance disbursements were down 1.6%, 21.3% and 19.0% respectively on account of industry wide de-growth. PAT declined 68.9% YoY to Rs. 174.5cr, due to the adoption of lower...

22 October 2019 LTFH reported a decent second-quarter performance amidst the tough economic environment. PAT (excluding one-off items) grew 16% YoY to INR6.5b (7% of our estimate). LTFH, however, took a one-time hit of INR4.7b on profits from DTA revision DTA under the new tax regime. Overall focused book disbursements declined 12% YoY to INR98b, driven by lower real estate and infra disbursements. Rural disbursements were in line with past trends. As a result, the share of rural lending in the total loan book increased 300bp YoY to 27%. While management expects 2HFY20 to be relatively slower in retail lending, it expects a pickup from FY21 onwards. Spreads were stable QoQ and YoY at 6.1%.Interestingly, GNPL/NNPL ratio increased 25/35bp QoQ due to seasonality in rural NPLs and the impact of floods in some areas. The company continues maintaining INR3.5b floating provisions. Tax rate for the quarter stood at 14% versus our estimate of 22%.

However, in the East India zone, LTFH has managed to increase its market share by 150-200bp over the past year. The company repossesses 400 vehicles pan-India every month; of this, 20% gets released back to the customer due to settlement. LTFH is the second largest financier for the dealer with a financing market share of 27% (narrowly behind Hero Fincorp that has a share of 28%). LTFH started two-wheeler financing via the acquisition of Family Credit, which was a financier based out of Kolkata. LTFH has been able to maintain that and is now the largest financier in East India it has a market share of 40-45% in West Bengal compared to its pan-India average of 10-12%. Its customer application rejection rate stands at 65% in West Bengal v/s 45-50% pan-India.

L&T; Finance Holdings (LTFH)offers financial products & services namely in the area of Rural, Housing & Wholesale, as well as Mutual Fund Products and Wealth Management services. LTFH is focusing more on retailization of book...

4QFY19 PAT almost doubled YoY to INR5.5b, 7% below our estimate. Adjusting for this, PAT would have beaten our estimate by 2%. The focused loan book grew 5% QoQ/ 17% YoY to INR983b driven by strong 2 May 2019 growth in rural and housing finance. strongest growth came from microfinance, 2W finance and real estate finance, while the company scaled back a bit in tractor finance. Excluding impact of the interest reversal, calculated margins (incl. fee income) were stable QoQ at 6.4%. Operating expenses grew 25% YoY to INR6.5b. However, excluding net loss on fair value changes, operating expenses were up only 3% YoY, which is impressive considering investments in the retail franchise. provision buffer currently stands at INR3.5b (INR2.8b in 3QFY19). Note that the IL&FS; exposure is classified as standard.

Net interest income (NII) grew at a robust pace of 54% YoY mainly on the back of 101 bps YoY improvement in net interest margin (NIM) to 5.1%. An increase in the proportion of high-yield business (rural business) and cost increases passed on to customers in wholesale and housing businesses helped to improve NIM. LTFH continued to improve its operating efficiency as cost to income (C/I) ratio declined by 234 bps YoY to 27.8%. Provisions declined by 9% YoY. Notably, LTFH has set aside Rs85cr as macroprudential provisions in Q3FY19, taking overall macroprudential provisions to Rs269cr for unforeseen risks in future. Net profit increased by 78% YoY. We expect net profit to grow at a CAGR of 37% over FY17-21E supported by robust growth in...

22 January 2019 L&T; Finance Holdings (LTFH) 3QFY19 PAT grew 81% YoY to INR5.8b, in line with our estimate, driven by strong AUM growth (+23% YoY), retailization of the balance sheet, and improving asset quality. LTHF prioritized its rural lending business in the quarter. The reduction in the GNPL ratio has come on the back of an improvement in asset quality in the rural lending book, while the housing finance and wholesale finance books witnessed stable asset quality. Over the past two years, LTFH has delivered a turnaround in business, with a strong improvement in RoE from 10% to 18%. It is now well on its journey of retailization of the balance sheet. Notwithstanding the tight liquidity in the past quarter, management has been able to grow its focused products impressively and yet maintain sufficient liquidity. We remain confident that LTFH would continue to generate strong return ratios over the medium term.