Update|NBFC
May 02, 2018
L&T Finance Holdings
BUY
CMP
`174
Focus on improving ROE
Target Price
`210
L&T Finance Holdings Ltd (LTFH), promoted by L&T Ltd (64.2%) is a leading NBFC
Investment Period
12 Months
with a diversified lending portfolio. Over the last two year the management has
Sector
NBFC
restructured its business model and is focusing on selective segments where it has
Market Cap (` cr)
34,654
competitive advantage, simultaneously downsizing some products which were
Beta
1.8
making losses.
52 Week High / Low
213.6/119.1
Avg. Daily Volume
41,45,730
New management strategies delivering results: LTFH had a vast portfolio of
Face Value (`)
10
financial products, which was a mix of productive as well as non-productive
BSE Sensex
35,176
segments. The company underwent a restructure at the beginning of FY17, when
Nifty
10,718
the new management focused on five products - retail, housing and whole sale
Reuters Code
LTFH.BO
loans, investment and wealth management services. Since then, LTFH set a target
Bloomberg Code
LTFH.IN
of ROE 18% to be achieved by 2020. As of 3QFY18, the company’s ROE stands at
15.9% which was 9.8% at the beginning of new management in FY17. The focus
Shareholding Pattern (%)
products are delivering continuous growth.
Promoters
64.2
Constant improvement in asset quality: LTFH’s loans & advances is increasing
MF / Banks / Indian Fls
8.3
steadily and reported a 26% rise at the end of 9MFY18. Major portion of the
FII / NRIs / OCBs
16.6
advances comprise of wholesale loan, followed by housing loans and retail loans.
In the midst of rising loan disbursements also, there is great focus at maintaining
Indian Public / Others
10.9
asset quality. The gross NPA as of 9MFY18 decreased to 5.5% from 9% in the
previous year. Similarly, net NPA also slumped to 2.9% from 7.3% in the year-ago,
primarily on account of an expansion in provision coverage from 20.4% in 49.1%.
Abs. (%)
3m 1yr
3yr
Sensex
(3.1)
17.6
30.2
Capital infusion to leverage growth: LTFH recently raised capital of `3,000cr,
which will keep the company’s required CAR intact. Additional capital infusion will
LTFH
(1.8)
29.0
173.7
help in developing its lending business in the coming years which is already
growing at a level of ~20%. The company raised `3,000cr in equity capital, of
which `2,000Cr came from the parent and `1000cr from institutional investors.
Outlook & Valuation: We expect going forward advance to grow at healthy CAGR
3-year price chart
250
of 24% over FY17-FY20E, primarily owing to focused lending segment (rural,
200
housing and wholesale) and better managed credit cost would further help to
150
improve return ratio. At CMP LTFH is trading at 2.5x of FY20 AdjBV. We
100
recommend a Buy rating on the stock, with a target price of `210.
50
0
Key financials (Consolidated)
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
NII
2,693
3,034
3,686
4,674
5,846
Source: Company, Angel Research
% chg
15
13
21
27
25
Net profit
854
1,043
1,345
1,931
2,479
% chg
17
22
29
44
28
NIM (%)
5.3
5.1
5.2
5.2
5.3
EPS (`)
4
5
6
9
11
P/E (x)
44
36
28
19
15
P/ABV (x)
5.0
4.6
4.3
2.9
2.5
Jaikishan Parmar
RoA (%)
1
2
2
2
2
022 - 39357600 Ext: 6810
RoE (%)
11
12
14
16
16
[email protected]
Source: Company, Angel Research; Note: CMP as of may 2, 2018
Please refer to important disclosures at the end of this report
1
L&T Finance Holdings Ltd | Update
Exhibit 1: QoQ performance
Particulars (` cr)
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
% YoY
% QoQ
Interest earned
2,088
2,094
2,163
2,259
2,384
2,630
25.6
10.3
Interest Expended
1,153
1,160
1,158
1,233
1,297
1,360
17.2
4.8
Net Interest Income
934
934
1,005
1,026
1,087
1,271
36.1
16.9
Other income
54
68
76
107
111
71
4.3
(36.1)
Operating income
988
1,002
1,080
1,133
1,198
1,341
33.9
12.0
Operating expenses
333
315
306
328
342
401
27.0
17.2
- Employee expenses
128
123
134
110
114
134
9.0
17.1
- Other Opex
205
193
173
217
228
267
38.5
17.2
C/I (%)
34
31
28
29
29
30
Pre-provision Profit
656
686
774
806
856
941
37.1
9.9
Provisions & Contingencies
320
328
688
459
471
493
50.2
4.7
PBT
335
358
85
347
385
448
25.1
16.2
Provision for Tax
89
81
-229
38
23
64
(21.6)
176.3
PAT
247
277
314
309
362
384
38.7
6.1
Effective Tax Rate (%)
26.5
22.6
-267.9
10.9
6.0
14.2
Source: Company
Exhibit 2: YoY Advance Performance (%)
Particulars
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Advance `cr (Q3FY18)
Microfinance
99.6
104.7
86.0
59.0
57.5
45.4
85.2
5,914
2 Wheeler
19.8
16.3
17.6
19.8
24.5
40.0
44.8
2,927
Farm Equip
(8.4)
(10.5)
(8.6)
(5.8)
2.0
12.2
21.1
5,268
Rural Finance
14.7
16.8
16.7
16.1
22.3
28.8
47.5
5,268
Housing Finance
53.5
51.2
33.6
27.8
30.2
35.1
48.7
17,193
Wholesale Finance
18.4
19.7
10.5
18.7
21.6
18.1
14.0
42,915
Focused Products
23.3
54.7
15.4
20.0
23.4
23.2
26.2
74,217
De-focused Products
(26.1)
(26.0)
(38.6)
(45.8)
(45.9)
(47.5)
(45.1)
1,747
Total
17.3
44.8
10.4
14.4
18.1
18.8
22.6
75,964
Source: Company
May 03, 2018
2
L&T Finance Holdings Ltd | Update
Income statement (Consolidated)
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
NII
2,693
3,034
3,686
4,674
5,846
- YoY Growth (%)
15
13
21
27
25
Other Income
653
911
1,087
1,346
1,645
- YoY Growth (%)
50
39
19
24
22
Operating Income
3,347
3,945
4,773
6,020
7,491
- YoY Growth (%)
21
18
21
26
24
Operating Expenses
1,313
1,277
1,492
1,795
2,193
- YoY Growth (%)
22
-3
17
20
22
Pre - Provision Profit
2,034
2,669
3,281
4,225
5,297
- YoY Growth (%)
20
31
23
29
25
Prov. & Cont.
781
1,590
1,776
1,795
2,084
- YoY Growth (%)
18
104
12
1
16
Profit Before Tax
1,253
1,079
1,505
2,430
3,213
- YoY Growth (%)
22
-14
39
61
32
Prov. for Taxation
399
36
160
499
734
- as a % of PBT
32
-91
340
212
47
PAT
854
1,043
1,345
1,931
2,479
- YoY Growth (%)
17
22
29
44
28
Balance sheet (Consolidated)
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Share Capital
2,967
2,969
2,969
3,140
3,140
Reserve & Surplus
5,324
6,020
7,096
11,470
13,454
Net Worth
8,291
8,989
10,065
14,610
16,594
Total Borrowings
51,616
59,811
75,362
92,695
1,09,380
- Growth (%)
23
16
26
23
18
Other Liabilities
3,840
3,713
5,335
4,896
8,144
Total Liabilities
63,746
72,514
90,762
1,12,201
1,34,118
Cash and Cash equivalents
Investments
3,563
6,012
6,393
7,627
9,322
Total Loans & Advances
56,468
62,315
79,763
99,703
1,19,644
- Growth (%)
23
10
28
25
20
Fixed Assets
696
619
681
749
824
Other Assets
3,019
3,569
3,926
4,122
4,328
Total Assets
63,746
72,514
90,762
1,12,201
1,34,118
May 03, 2018
3
L&T Finance Holdings Ltd | Update
Ratio analysis
Y/E March
FY16
FY17
FY18E
FY19E
FY20E
Profitability ratios (%)
NIMs
5.3
5.1
5.2
5.2
5.3
RoA
1.5
1.5
1.6
1.9
2.0
RoE
11
12
14
16
16
Asset Quality (%)
Gross NPAs %
3.1
3.1
3.9
4.3
4.4
Net NPAs %
2.1
2.1
2.3
2.6
2.6
Credit Cost
1.3
2.3
2.2
1.8
1.7
Per Share Data (`)
EPS
4
5
6
9
11
BVPS
38
41
46
67
77
Adj BV
35
38
41
61
68
Valuation Ratios
PER (x)
44
36
28
19
15
P/BVPS (x)
4.5
4.2
3.7
2.6
2.3
P/ABVPS (x)
5.0
4.6
4.3
2.9
2.5
DuPont Analysis
Interest Income
12
11
11
11
11
Interest Expenses
7
7
7
7
7
NII
5
4
5
5
5
Provision
1
2
2
2
2
Adj NII
3
2
2
3
3
Other Inc.
1
1
1
1
1
Total Income
4
3
4
4
4
Opex
2
2
2
2
2
PPP
2
2
2
2
3
PBT
2
2
2
2
3
Taxes
1
0
0
0
1
RoA
1
2
2
2
2
Leverage
7
8
9
8
8
RoE
11
12
14
16
16
Note - Valuation done on closing price of 02/05/2018
May 03, 2018
4
L&T Finance Holdings Ltd | Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager and Investment Adviser with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking
Private Limited is a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide
registration number INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory
authority for accessing /dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or
co-managed public offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
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While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
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Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Disclosure of Interest Statement
L&T Finance Holdings
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
May 03, 2018
5