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L&T Finance Holdings Ltd. (LTFH) - Qtr. Update - Dated - July 23, 2013




Axis Capital Limited


24 Jul 2013





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LT Finance Holdings’ Q1 performance was impacted by higher slippages both in retail and infrastructure finance segments. Consolidated business growth (up 31% YoY) was driven by tractor finance, loan against shares, housing finance, and refinance demand. We expect loan growth CAGR of 23% over FY13-15 (36% CAGR over FY11-13). Consolidated NIM (5.6%) was stable but cost of funds is expected to increase due to recent spurt in money market rates. Accordingly, we reduce our NIM estimate by 10 bps in FY14. GNPA increased by 50 bps QoQ to 2.5% in Q1. Management expects GNPA and restructured book to see more stress going forward. Outlook and valuation We reduce our PAT estimate by 10% each in FY14 and FY15 to factor in lower NIM and higher GNPAs. Maintain HOLD with SOTP-based target price of Rs 75, which leaves little room for upside from CMP of Rs 74. At CMP, the stock trades at 2.3x consolidated ABV of Rs 32 (Rs 34 earlier) and 2.1x FY15E consolidated ABV of Rs 36 (Rs 38 earlier). Banking license – rerating trigger: 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. Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research Axis Capital Ltd Tel.: + 91 22 4325 1102 Namesh Chhangani (AVP – BFSI) Institutional Equity Research Axis Capital Ltd Tel.: +91 22 4325 1127 Deepak Agrawal (VP – BFSI) Institutional Equity Research Axis Capital Ltd Tel.: +91 22 4325 1133

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