MOSL: L&T FINANCE HOLDINGS (Buy)-Strong fee income traction-meaningful asset quality improvement
​L&T Finance Holdings: Strong fee income traction; meaningful asset quality improvement
(LTFH IN, Mkt Cap USD4.6b, CMP INR163, TP INR200, 24% Upside, Buy)
- L&T Finance Holding’s (LTFH) 1QFY18 PAT grew 49% YoY to INR3.09b. Robust core disbursement growth of 95% YoY, strong fee income across all lending segments, sharp reduction in the GNPL ratio and shoring up of the provision buffer were key highlights of the quarter.
- Rural business: 2W/tractor disbursements increased 82%/169% YoY. While such strong growth in the tractors segments was expected (LTFH has been gaining market share from the lows of 4% in FY16 to 11% now), growth in the 2W financing segment was a positive surprise. With PPoP margins improving 180bp YoY to 10.72%, management chose to incur higher provisions and maintain RoE at 21-22% levels.
- Housing business: Growth in the retail home loan/LAP segment remains sluggish, but was compensated by 4x disbursements in the builder loans segment. Consequently, strong fee income helped improve RoA/RoE to 3.2%/30% in 1QFY18. However, we expect RoE to normalize to 18-19% by FY19.
- Wholesale business: LTFH has also started last mile financing for road projects in the past few quarters. This, coupled with a large number of operational projects coming up for refinance, drove 4.5x disbursement growth in the quarter. While margins are under pressure, fee income traction is strong. RoE remained largely stable YoY at 10%.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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