MOSL: L&T Finance Holdings (Buy)- Adhering to 18%+ RoE guidance by FY20 despite capital raise
L&T Finance Holdings: Adhering to 18%+ RoE guidance by FY20 despite capital raise
(LTFH IN, Mkt Cap USD5.5b, CMP INR177, TP INR240, 36% Upside, Buy)
- L&T Finance Holding’s (LTFH) 4QFY18 PAT grew 29% YoY to INR4.1b (8% above estimate), driven by higher-than-expected PPoP and lower provisions.
- Rural business: Disbursements remain on a robust trajectory, driven by all segments, especially microfinance. The microfinance book now stands at INR75b, making LTFH among the largest MFI entities in India. The tractor finance book has also witnessed a clear turnaround over the past few quarters, with growth coming in at 28% YoY in 4QFY18. RoE in this segment remained stable at 30% even post capital infusion, as credit costs which were running high post demon have normalized.
- Housing business: Disbursement growth in the retail home loan/LAP segment has picked up smartly in the past two quarters and stood at 43% YoY. Disbursement growth in real estate finance, too, was at similar levels. Credit costs declined sharply from the run-rate levels in the past three quarters (1.7%) to 0.4%, as a result of which the company delivered 30% RoE in this segment.
- Wholesale business: The trend in 4QFY18 was similar to that in the past three quarters. Loan growth in infra finance was a moderate 13% YoY, led by 35% YoY growth in renewable power. Given high credit costs, RoE remains tepid at 10%.
- For FY18, the company delivered 40% YoY growth in PAT (before pref. dividend) to INR14.6b, driven by 28% YoY growth in the focused loan book.
L&T Finance Holdings Limited is a non-banking financial institution-core investment company. The Company's segments include Retail and Mid Market Finance, which consists of rural products finance, personal vehicle finance, microfinance, housing finance, commercial vehicle finance, construction equipment finance, loans and leases and loan against shares; Wholesale Finance, which consists of project finance and non-project corporate finance to infra and non-infra segments across power-thermal and renewable; transportation-roads, ports and airports; telecom, and other non-infra segments; Investment Management, which consists of assets management of mutual fund and private equity fund, and Other Business, which consists of wealth management and financial product distribution. It offers a range of financial products and services across retail, corporate, housing and infrastructure finance sectors, as well as mutual fund products and investment management services.
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