Analyst Research Report Snapshot

Title:

L&T Finance Holdings (LTFH) - Qtr. Update - Dated - January 24, 2014

Price:

$46.00

Provider:

Axis Capital Limited

Date:

25 Jan 2014

Pages:

5

Type:

AcrobatPDF

Companies referenced:

LTFH.NS

Available for Immediate Download
Summary:

LT Finance Holdings’ (Bloomberg: LTFH IN) Q3 performance was impacted due to higher NPAs and lower NIM; however loan growth was high. Loan growth (21% YoY) remained high due to (1) drawdown from sanctioned loans in infrastructure segment, (2) growth in rural segment, and (3) mortgage portfolio buyout (Rs 7 bn) during Q3. We expect loan CAGR of 20% over FY13-15 (36% CAGR over FY11-13). NIM (5.3% down 22 bps QoQ) was impacted due to increase in restructured loans in wholesale finance and rising share of refinance loans (low yields). Management expects NIM to improve with (1) rising retail assets share, (2) reducing reliance on high cost bank borrowing, and (3) full impact of mortgage portfolio bought (in Dec’13). Asset quality deteriorated (in line with guidance) as NNPA increased 13% QoQ to Rs 7.4 bn (2% NNPA ratio) due to stress in construction equipment and CV segment. Restructured book increased to 6% (5.2% in Q2FY14) and management expects restructuring to continue in coming quarters. Management follows provisioning policy in line with banking system and will not be impacted due to recent RBI guidelines. Outlook and valuation Increasing scale (inorganic) and rising retail share will improve NIM, asset quality and leverage which in turn will lead to improved RoE. Management indicated credit cost to reduce, NIM to improve but loan growth may taper off a bit in coming quarters. We recommend HOLD with SOTP-based target price of Rs 66, implies 6% downside from CMP of Rs 71. At CMP, the stock trades at 2.2x FY14E consolidated ABV of Rs 32 and 2.0x FY15E consolidated ABV of Rs 36. 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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