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Analyst Research Report Snapshot


L&T Finance Holdings (LTFH) - Co. Report - Dated - May 24, 2013




Axis Capital Limited


27 May 2013





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Spreading its wings L&T Finance Holdings (LTFH) is a holding company, with subsidiaries that operate in retail, infrastructure, and corporate finance segments. It contributed ~10% of parent’s (L&T) FY12 consolidated profits. LTFH has recently acquired various businesses (housing loans, 2-wheeler loans, and mutual fund) to widen its product portfolio. Banking license is the only piece missing! Key positives  Stock liquidity to improve: SEBI regulation requires L&T to pare its holding in LTFH to 75% or below by August 2014 (from 82.6% currently)  Home loans to see exponential growth: Home loan subsidiary (recently acquired and currently in nascent stage) will benefit from L&T’s brand and exposure to real estate construction (accounts for ~27% of L&T’s current order book), cross selling opportunities, and pan-India presence  Above industry loan growth to sustain: Despite widening product portfolio, loan growth will moderate to 23% CAGR over FY13-15E on higher base (vs. 36% CAGR over FY11-13). We expect NIM to remain stable (5.4%) and RoE to improve (16% vs. 14% currently) over next two years  Asset quality comfort given large part of portfolio is linked to L&T’s domain expertise – (1) Infra (44% of loans) – insights from parent in terms of sectoral profitability and credit worthiness and (2) 70% of supply chain financing (3% of loans) to vendors and dealers of L&T. We expect GNPA ratio of 2.2% by FY15E vs. 2% in FY13 Banking license to drive rerating; Initiate coverage with HOLD Diversified product portfolio along with pan-India presence (including rural), and diversified shareholding at parent level make LTFH a key contender for a banking license. This will widen canvas of business opportunities along with a larger customer base. While transformation into a bank (not factored in) will drive LTHF's rerating, current valuation (2.3x FY14E consolidated ABV of Rs 34 and 2.1x FY15E consolidated ABV of Rs 38) leaves limited room for upside. Initiate coverage with HOLD and SOTP-based target price of Rs 77, which implies downside of 2% from CMP of Rs 79. Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1102 Siddharth Goel (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1126 Deepak Agrawal (VP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1133 Namesh Chhangani (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1127

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