MOSL: L&T FINANCE HOLDINGS (INITIATING COVERAGE)-Focused approach-Strong execution toward stated goals
​L&T Finance Holdings (initiating coverage): Focused approach; Strong execution toward stated goals to boost profitability
(LTFH IN, Mkt Cap USD4.1b, INR150, TP INR180, 20% Upside, Buy)
- L&T Finance Holdings (LTFH) is a quintessential turnaround story, in our view. From a company with 20+ product lines and sub-standard return ratios, it is gradually transforming itself to a focused financier with eight product lines across three verticals, with a target to achieve 18-20% RoE by FY20 (~12% in FY17).
- The company has identified three segments to focus on - wholesale, housing and rural finance, which comprise 62%, 19% and 15% of the total loan book, respectively. While the rural and housing segments have already achieved 20%+ RoE, going forward, wholesale financing (RoE- FY17: 11%, FY20E: 16%) will be the key driver of profitability improvement.
- Strong growth and a decline in expense ratio and credit costs should elevate RoA/RoE from 1.5%/12.4% in FY17 to 2.3%/19.2% in FY20. While the stock has re-rated well over the past year on account of strong execution by management, we expect re-rating to continue. We thus initiate coverage on LTHF with a Buy rating and a target price of INR180 (3.0x FY19E BVPS).
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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