23 October 2020
2QFY21 Results Update | Sector: Financials
L&T Finance 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
1,999
130.3 / 1.8
134 / 46
1/-23/-30
1175
CMP: INR65
TP: INR90 (+39%)
Buy
Disbursements pick up, collections improve, and
provisions are enhanced
Financials & Valuations (INR b)
Y/E March
2020 2021E
Total Income
70.3
64.1
PPP
50.6
45.2
Adj. PAT
21.7
9.4
EPS (INR)
10.9
4.7
EPS Gr. (%)
-2.7
-57.0
BV/Sh. (INR)
72
75
Ratios
NIM (%)
5.8
5.2
C/I ratio (%)
28.1
29.5
RoAA (%)
2.0
0.8
RoE (%)
15.6
6.4
Payout (%)
17.8
13.9
Valuation
P/E (x)
6.0
13.9
P/BV (x)
0.9
0.9
Div. Yield (%)
2.0
0.9
Shareholding pattern (%)
As On
Sep-20
Jun-20
Promoter
63.7
63.7
DII
5.0
5.5
FII
7.1
9.4
Others
24.3
21.5
FII Includes depository receipts
2022E
72.6
52.6
21.5
10.7
129.4
85
5.6
27.6
1.9
13.4
13.9
6.1
0.8
2.0
L&T Finance Holdings (LTFH) reported 2QFY21 PAT of INR2.5b (down 62%
YoY). PPoP increased 16% QoQ to INR11.6b, resulting in 9% beat (down 13%
YoY). However, as the company chose to further build up its provision buffer,
total credit costs came in at INR8.4b, 11% higher than our estimates.
We expect the company to continue to build up provisions for the next 2–3
quarters, taking its standard asset provisions to 2.5–3% of loans. Hence,
we cut our FY21 EPS estimate by 8%, but upgrade the FY22 estimate on
account of better top-line growth.
Disbursements picked up to ~75% of YoY levels in the quarter, driven by
vehicle/infrastructure finance. Tractor disbursements jumped nearly 60%
YoY to INR11b, making LTFH the largest tractor financier in the country in
2QFY21 (with nearly 15% market share). 2W disbursements reached YoY
levels of INR11b. In MFI, the company remains cautious as disbursements
were half of YoY levels.
Disbursements in housing/real estate finance remained muted, while
those in infrastructure finance were close to last year’s levels. The total
loan book remained largely flat on a QoQ/YoY basis at INR988b.
As per the management, LTFH would not do any incremental underwriting
in the builder loan portfolio. The company would just continue to support
existing relationships in the ensuing quarters.
Collection efficiency (CE) improved significantly across product segments.
Total collections more than doubled from INR43b to INR103b QoQ.
Collections are now at 95% of YoY levels.
CE in MFI improved to 90% in Sep’20. 37% of customers who did not repay
in Sep’20 paid in Oct’20. CE in tractor finance stood at 89%, while that in
2W finance improved to 86% in Sep’20. In corporate lending, toll
collections reached pre-COVID-19 levels.
Despite improving CE, LTFH continued to build up its provision buffer by
taking INR5.1b COVID-related provisions in the quarter. Including these
provisions, the total standard asset provision buffer now stands at INR22b
(2.4% of loans). Interestingly, the MFI book alone carries additional
provisions of INR11b (9% of the MFI book). In our view, LTFH would
continue making elevated provisions over 2HFY21.
The GNPL/NNPL ratio was largely unchanged at 5.2%/1.7%. Note that the
housing finance book witnessed a 20bp QoQ rise in the GNPL ratio to 1.2%.
As of Sep ’20, in retail lending, Stage 1 was 95% (with a provision of 3.1%)
and Stage 2 was 2% (with a provision of 39%); the balance Stage 3 had a
provision of 80%.
Disbursement recovery in vehicle and infra finance
Sep-19
63.9
5.3
10.8
20.1
Collections improving; building up the provision buffer
Research Analyst: Piran Engineer
(Piran.Engineer@MotilalOswal.com) |Alpesh
Mehta
(Alpesh.Mehta@MotilalOswal.com)
Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com) |
Divya Maheshwari
(Divya.Maheshwari@motilaloswal.com)
17 July 2020
1
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.