MOSL: L&T FINANCE HOLDINGS (Buy)-Slowing growth-marks down 50% of specific HFC exposure
L&T FINANCE HOLDINGS: Slowing growth; marks down 50% of specific HFC exposure
(LTFH IN, Mkt Cap USD3.1b, CMP INR108, TP INR140, 30% Upside, Buy)
- 1QFY20 PAT was largely flat YoY/QoQ at INR5.5b (in-line). The quarter was characterized by slowdown in loan growth, interest write-backs, and increased credit costs due to a one-time provisioning.
- LTFH marked down 50% of its INR5.7b exposure to a particular HFC, which is now rated D. This led to a sharp increase in credit costs (INR5.8b v/s INR3.7b in 4QFY19). However, we note that the company did not make any macro-prudential provisions in the quarter (INR800m in 4QFY19).
- LTFH wrote back INR840m interest on some ILFS exposures, which have now been classified as 'green' from 'amber'.
- Overall loans grew 16% YoY (flat QoQ) to INR999b. We note that LTFH has now classified its structured finance and DCM books as 'de-focused,' as the company believes that it is a marginal player. On the other hand, consumer and SME finance will be two new lines of business for the company. The focused loan book (ex SFG and DCM) grew 2% QoQ/24% YoY to INR905b, driven by strong growth in rural (36% YoY) and housing finance (28% YoY).
- GS3 declined by ~20bp QoQ (-220bp YoY) to 5.7%, with PCR largely stable at 58%. LTFH reduced the share of CPs to 13% from 20% a year ago. The company raised INR10b via retail NCDs and USD275m via ECBs.
- Valuation and view: Over the past year, LTFH has reported a healthy operating performance and asset quality, despite the tough liquidity situation. It has also made contingency provisions (now INR3.5b). The plan to de-prioritize structured finance and DCM is in sync with its target of 'retailization' of balance sheet. However, we cut our EPS estimate by 4-8% to account for lower growth. Buy with a TP of INR140 (1.5x FY21E 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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