L&T Financial Holdings
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
LTFH IN
1,996
105.7 / 1.5
138 / 46
-14/-20/-34
1166
18 May 2020
4QFY20 Results Update | Sector: Financials
CMP: INR53
TP: INR75 (+42%)
Business performance stable
Buy
Increased provisioning for COVID-19 impacts earnings
Financials & valuations (INR b)
Y/E March
2020 2021E
Total Income
70.3
71.5
PPP
50.6
51.3
Adj. PAT
21.7
17.1
EPS (INR)
10.9
8.6
EPS Gr. (%)
-2.7
-21.3
BV/Sh. (INR)
71.9
79.0
Ratios
NIM (%)
5.8
5.9
C/I ratio (%)
28.1
28.3
RoAA (%)
2.0
1.6
RoE (%)
15.6
11.3
Payout (%)
17.8
13.9
Valuation
P/E (x)
4.9
6.2
P/BV (x)
0.7
0.7
Div. Yield (%)
2.5
1.9
Shareholding pattern (%)
As On
Mar-20 Dec-19
Promoter
63.7
63.9
DII
5.2
4.4
FII
10.6
12.5
Others
20.5
19.2
FII Includes depository receipts
2022E
75.0
53.7
23.3
11.7
36.3
89.4
6.0
28.4
2.1
13.8
13.9
4.5
0.6
2.6
LTFH reported 4QFY20 PAT of INR3.8b (-30% YoY), ~20% below our
estimates. The miss was largely on account of lower-than-expected total
income (8% miss) while opex and credit costs were in line. LTFH reported
INR844m in net loss on fair value changes, which led to the topline miss.
LTFH created additional provisions of INR3.1b for the impact of COVID-19
during the quarter, of which INR2.1b was as per the RBI’s requirement of
5% provisioning against 1-89dpd loans under moratorium.
The provision
would be repeated in 1QFY21. While as of Mar’20, ~36% of AUM was
under moratorium, a modest increase was seen in April.
Disbursements in Rural finance declined ~20% QoQ, compared with 6–9%
decline witnessed in other segments. The plunge in Rural lending was
largely attributed to the Auto segment (Tractors and 2Ws).
Hence, loan
growth in the segment declined to 8% YoY in 4QFY20 from 14% YoY in
3QFY20.
While NIM on a consolidated basis came in steady at 5.7%, lower
disbursements led to ~50bp decline in the fee income margin to 1.2%.
CoF declined 10bp QoQ to 8.4%. The share of CPs was down 300bp QoQ /
1,000bp YoY to 6%.
The GNPL ratio improved 60bp QoQ to 5.4%, with PCR at 59% (+200bp
QoQ).
More importantly, even without the moratorium on 1-89dpd loans, the
GNPL ratio would have been only 25bp higher at 5.6%.
LTFH has INR6.6b worth of provisions over and above the standard asset
and NPL provisions; this includes the existing INR3.5b macro-prudential
provisions and INR3.1b worth of COVID-19-related provisions this quarter.
Rabi crop output is strong. Economic recovery would be led by rural India.
Credit norms have been tightened across products.
75% of the portfolio falls under the Orange and Green zones.
Rural disbursements most impacted; NIM stable
Improvement in asset quality
Mar-19
63.9
3.0
11.4
21.7
Highlights from management commentary
Valuation and view
Over the past year, LTFH has focused on consolidating its loan book and
improving the liability franchise. The overall loan book has been largely flat
and is expected to remain this way in the near term. On the liability side, the
share of CPs is down to 6% YoY from 16% YoY. The proposed consolidation of
lending subsidiaries would further simplify the business structure. We estimate
a 4% loan book CAGR over the next three years (largely back-ended). Asset
quality performance would be the key monitorable going ahead. We cut our
FY21/FY22 EPS estimates by 17%/8% to factor in higher credit costs given the
extended lockdown. Buy, with TP of INR75 (0.8x FY22E BVPS).
Research Analyst: Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539 |Alpesh
Mehta
(Alpesh.Mehta@MotilalOswal.com);+91 22 6129 1526
Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Divya Maheshwari
(Divya.Maheshwari@motilaloswal.com); +91 22 6129 1540
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
20 January 2020
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