27 November 2019
Update | Sector: Financials - NBFC
L&T Finance
Buy
BSE SENSEX
40,821
S&P CNX
12,038
CMP: INR108
TP: INR130 (+21%)
Focus on raising the retail lending share
Valuations attractive at 1x BVPS
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
LTFH IN
1,988
205.9 / 2.9
159 / 79
11/-24/-37
1036
36.1
Financials Snapshot (INR b)
2019 2020E
Y/E March
64.4
73.0
Total Income
41.4
53.2
PPP
22.3
24.8
PAT
11.2
12.4
EPS (INR)
68.4
79.4
BV/Sh. (INR)
2.3
2.3
RoAA (%)
18.0
16.8
RoE (%)
13.9
11.6
Payout (%)
Valuation
P/E (x)
9.7
8.7
P/BV (x)
1.6
1.4
Div. Yield (%)
1.2
1.1
Shareholding pattern (%)
As On
Sep-19 Jun-19
Promoter
63.9
63.9
DII
5.3
3.1
FII
10.8
10.5
Others
20.1
22.6
FII Includes depository receipts
Stock Performance (1-year)
L&T Fin.Holdings
Sensex - Rebased
175
150
125
100
75
A key focus area of management over the past few years has been retailization
of balance sheet. LTFH revamped its strategy in home loans by increasing the
share of in-house sourcing to 70%+.
In tractor and 2W finance, it has a strategy
of targeting only the top dealers and OEMs based on feedback from its
7.7
1.2
analytics.
As a result, the company has grown the rural finance book by 2.5x in
1.3
2.5 years. A key driver of this has been microloans, wherein the company has
expanded into 17 states – the book now accounts for 48% of the total rural
lending book compared to 35% in FY17.
Including home loans and LAP, the
Sep-18
share of retail lending has increased from 27% in FY17 to 38% in 1HFY20.
With
64.0
5.1
run-down of the de-focused wholesale lending book (structured finance and
8.8
debt capital markets) and stronger growth in 2W finance and microloans, the
22.1
share of retail lending (rural + retail housing finance) is expected to reach 43%
by FY22.
2021E
78.7
56.7
28.2
14.1
91.8
2.5
16.5
11.6
L&T Finance Holdings (LTFH) has grown its rural finance book ~2.5x over the past 2.5
years to INR270b. A key driver of growth has been microloans, which now
comprises nearly half of rural loans. Consequently, the share of this business in the
total segment is up from 15% to 27% over the same time period.
CRISIL rated the company ‘AAA’ in October 2019 on the back of a diversified loan
and borrowing book and support from the parent. Cost of funds increased only
30bp YoY to 8.6%. LTFH runs a positive ALM across tenors in the sub-1 year bucket.
Profitability of the business has been largely intact over the past four quarters – the
company has delivered stable ~16% RoE.
The AMC business has witnessed 44% AAAUM CAGR over the past three years, with
the share of equity increasing from 41% to 55%. With improving profitability, we
believe this business is on track to deliver INR2b+ PAT in FY22 (post INR500m
amortization of goodwill).
Current valuation of 1.0x Sep’21E BVPS is undemanding. The company is poised to
deliver steady retail loan growth, increasing share of AMC profits and healthy RoE
(16-17%). Buy rating with a target price of INR130 (1.3x Sep’21E BVPS).
Share of retail lending steadily increasing
54% PCR higher than most peers; INR3.5b floating provision buffer
In the tough operating environment over past one year LTFH witnessed asset
quality improvement with the GNPL ratio declining 110bp to 6.0% which is
commendable. The improvement has been driven largely by wholesale and rural
finance, while asset quality in housing finance has been largely stable. The GNPL
ratio in the wholesale finance book is at 9% largely due to legacy stressed loans
in the thermal power finance book. These loans comprise half of the total GNPLs
in this book.
The company maintains 54% PCR on its GNPLs – higher than that
of most peers (refer Exhibit 10).
In addition, it has INR2.35b of floating
provisions in rural finance and INR1.15b of provisions in housing finance.
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.
 Motilal Oswal Financial Services
L&T Finance
Cost of funds largely stable; AAA rating by CRISIL
In Oct’19, CRISIL rated the company ‘AAA’ on the back of its diversified loan and
borrowing book, along with the expectation of strong support from the parent.
Over the past year, the company has pared down its outstanding CPs from INR156b
(18% of borrowings) to INR90b (10% of borrowings). Yet, cost of funds has increased
only 30bp to 8.6%. LTFH has a positive ALM across tenors as nearly half the book has
an actuarial tenor of less than three years (renewable financing has a short tenor as
borrowers tend to refinance these loans within 1-2 years).
Expect 30% PAT CAGR in AMC business over FY19-22
Over FY16-19, AAAUM nearly tripled (44% CAGR) to INR712b, driven by 60% CAGR
in equity AAAUM.
The company is the 12
th
largest mutual fund in the country in
terms of QAAUM as of Sep’19.
In terms of the contribution from individuals, LTFH
ranks second among large peers – the share of AUM coming from individuals
stands at 68%,
giving it a granular and sticky portfolio. With improving profitability,
this business is on track to deliver INR2b+ PAT in FY22 (post INR500m amortization
of goodwill on Fidelity acquisition), implying 30% PAT CAGR.
Re-jigging the wholesale lending segment
Over the past year, the company has exited several wholesale business segments. It
sold its supply chain finance business to Centrum Finance. It has also announced
plans to run-down the structured finance book (SFG) and the debt capital markets
(DCM) book (currently ~INR65b).
As a result, there will be two key areas of focus in
this segment – renewable power finance and road finance.
Note that the share of
renewables finance, wherein LTFH is the market leader, increased from 46% to 53%
of the wholesale lending book YoY.
Valuation provides comfort
Over the past year, LTFH has been able to raise adequate debt capital from multiple
sources at competitive prices. The company has balanced liquidity, growth and
profitability over the past year in a tough environment. Over the coming years,
management has outlined a clear set of goals – stable ‘NIM + fee,’ healthy asset
quality, retailization of the balance sheet, and prudent ALM management. With
gradual run-down of the DCM book, volatility in fees is likely to reduce. The AMC
business is on a track of improving profitability.
Buy
with a target price of INR130
(1.3x Sep’21E BVPS).
27 November 2019
2
 Motilal Oswal Financial Services
L&T Finance
Retail traction steady; Profitability largely intact
Parentage a key factor in liability management
Rural lending book growth
at 20%+ YoY despite
sluggish OEM sales
Loan book mix steadily changing to granular portfolio
The rural lending business has witnessed steady growth in the backdrop of
sluggish two-wheeler and tractor OEM sales. This is because of increasing
penetration of micro loans – from 35% in FY17 to 48% now.
In the MFI business, the company has a diversified presence in 17 states with
Tamil Nadu being the largest state.
Exhibit 2: Share of microfinance rising (%)
Microfinance
41
35
21
39
37
20
43
34
20
46
32
20
48
2W
31
20
49
Farm Equipment
30
22
48
29
22
49
29
23
48
29
23
48
Exhibit 1: Rural lending now comprises 26% of total loans
Loan book (INR b)
70
53
36
76
71
65
50
24
266
Growth (%)
125
146
170
191
214
241
256
258
Source: MOFSL, Company
Source: MOFSL, Company
At the same time, the company has been cautious in wholesale lending. As a
result, its share is down from 62% to 47% over the past two years.
Share of wholesale finance
down from 62% to 47%
over the past two years.
Exhibit 3: Share of housing and rural finance increasing (%)
Rural
Housing
Wholesale
50
25
25
48
26
26
48
26
26
47
27
27
66
65
20
16
62
21
17
59
22
19
58
22
20
54
24
22
53
24
24
19
15
Source: MOFSL, Company
LTFH has re-jigged its wholesale lending operations over the past year. It sold its
supply chain finance business is running down the structured finance book (SFG)
and the debt capital markets (DCM) book (currently ~INR65b).
As a result, there will be two key areas of focus in this segment – renewable
power finance and road finance.
27 November 2019
3
 Motilal Oswal Financial Services
L&T Finance
Exhibit 4: Share of renewable power and roads financing on the rise (%)
Renewable Power
47
23
29
47
20
33
47
18
35
51
12
36
48
14
38
Transport
46
16
38
43
17
40
Others
39
20
41
24
24
52
24
24
53
Source: MOFSL, Company
~60% of the networth is
allocated to the rural and
housing finance segments.
Allocating maximum capital to the high RoE businesses
The rural and housing finance segments have consistently delivered higher RoE
than the wholesale segment.
This is primarily due to significantly higher
margins (11% in rural, 5% in housing and 3% in wholesale finance).
While the contribution of rural/housing finance to the total loan book is 27%
each, their PAT contribution is 38%/30% respectively, as of 2QFY20.
Exhibit 5: RoE trend of the various segments (%)
40
30
20
10
0
Rural
Housing
Wholesale
Source: MOFSL, Company
Exhibit 6: With increasing PAT contribution (%)…
Rural
7
37
27
29
7
26
31
35
6
16
38
40
Housing
1
36
29
34
43
4
13
39
Wholesale
8
24
32
36
10
16
35
39
Others
9
30
27
33
8
24
30
38
Exhibit 7: …Networth allocation also increasing (%)
Rural
13
50
18
19
9
47
22
22
Housing
24
29
23
25
17
34
23
25
Wholesale
0
47
24
28
46
27
28
-1
Others
9
35
28
28
3
37
29
30
Source: MOFSL, Company
Note: Includes PAT of focused segments only
Source: MOFSL, Company
27 November 2019
4
 Motilal Oswal Financial Services
L&T Finance
GNPL ratio declined
700/400bp in
rural/wholesale lending to
9.2%/3.6% over the past
two years.
Improvement in asset quality in rural and wholesale lending
Over the past two years, the company has successfully lowered its GNPL ratio
from 11% in 2QFY18 to 6% in 2QFY20.
This was driven by a sharp improvement in asset quality in rural and wholesale
lending.
GNPL ratio declined 700/400bp in rural/wholesale lending to
3.6%/9.2%.
Exhibit 9: …driven by rural and wholesale lending (%)
Rural
13.8
58
54
10.9
8.2
6.4
4.9
4.3
3.8
3.5
3.4
3.6
14.3
11.9
14.1
10.9
10.9
10.5
9.7
9.2
Wholesale
Exhibit 8: Sharp improvement in asset quality (%)…
GNPL ratio
64
57
54
11.0
10.4
8.7
7.9
7.1
6.7
5.9
5.7
62
62
62
PCR
61
6.0
Source: MOFSL, Company
Source: MOFSL, Company
At 54%, stage 3 PCR higher
than most peers.
Stage 3 provision coverage ratio higher than most peers
A few companies under our coverage maintain 50%+ provisions against stage 3
assets. LTFH is one of them.
Its PCR of 54% is second only to Bajaj Finance in our coverage universe.
Exhibit 10: Stage 3 PCR for large companies under our coverage (1HFY20, %)
59.9
54.2
43.5
43.3
43.1
34.4
33.0
32.1
28.2
22.3
19.5
BAF
LTFH
SCUF
HDFC
LICHF
CIFC
ABCL
SHTF
Repco
PNBHF MMFS
Source: MOFSL, Company
Share of CPs down from
18% to 10% YoY.
Diversifying the liability mix; reducing dependence on CPs
Over the past year, the company has raised money from several alternative
sources like retail NCDs and ECBs, in addition to term loans.
Like its peers, it
also reduced the share of CPs from 18% to 10% YoY.
Despite the lower share of short-term borrowings, it has been able to contain
cost of funds at 8.6% (up only 30bp YoY).
Also, on an incremental basis, the
company is able to raise long-term NCDs at 8.5-9.0% and CPs at 6.0-6.5%.
The company also maintains a positive ALM across all buckets in the sub-12
month category.
27 November 2019
5
 Motilal Oswal Financial Services
L&T Finance
Exhibit 11: Reducing dependence on CPs (%)…
NCD
8
14
41
37
2
20
35
43
Bank loans
5
18
36
41
6
16
36
42
CP
4
16
36
44
Others
5
13
38
44
6
10
42
42
8.36
8.24
8.16
8.33
8.23 8.29
Exhibit 12: …Yet, cost of funds at healthy levels (%)
Cost of funds
8.59 8.61
8.50 8.53
Source: MOFSL, Company
Source: MOFSL, Company
CPs incrementally raised at
~6% and NCDs at ~8.5%.
Exhibit 13: Some recent NCD, CP issuances by the company
Instrument
NCD
NCD
NCD
CP
CP
CP
Month of issue
Sep
Aug
May
Nov
Oct
Sep
Tenure of instrument
10YR
7YR
7YR
180D
57D
70D
Interest rate (%)
8.90
8.55
8.80
6.08
5.50
6.02
Source: MOFSL, Company, NSE, FTRAC
Exhibit 14: Positive ALM across all buckets in the sub-1 year category (as of 1HFY20)
INR b
Assets
Liabilities
Mismatch
1-14D
107.0
15.0
92.0
14-30D
28.8
16.3
12.6
1-2M
41.2
39.5
1.6
2-3M
60.3
56.3
4.0
3-6M
6-12M
88.9
224.3
61.9
131.9
27.0
92.4
Source: MOFSL, Company
We expect 9% loan book
CAGR over FY19-22.
Expect high-single-digit loan book CAGR over FY19-22
In the recent past, the company has gone slower on disbursements in some
segments such as builder finance in which disbursements were down 20%+ YoY
in 1HFY20. In other segments such as tractor finance, there is a cyclical
slowdown for the industry on the whole.
In addition, the company classified its structured finance and debt capital
markets books as de-focused, implying that it would run-off over time.
That
book stands at ~INR65b, i.e., 7% of total loans.
While we expect 12-13% CAGR in rural and housing finance, slower growth in
wholesale lending and run-down of the de-focused book, overall loan book
CAGR is estimated at 9%, in our view.
27 November 2019
6
 Motilal Oswal Financial Services
L&T Finance
Exhibit 15: Expect 9% loan book CAGR over FY19-22
Loans (INR b)
27
23
18
10
15
8
793
FY18
913
FY19
987
FY20E
9
1,075
FY21E
9
1,171
FY22E
Growth (%)
460
FY15
565
FY16
623
FY17
Source: MOFSL, Company
2.5%/16% average consol.
RoA/RoE going forward
16-17% sustainable RoE on a consolidated basis
With 9% loan book CAGR and modest NIM expansion due to the increasing
share of retail lending, we expect PAT CAGR (FY19-22) of 13% to INR32b.
RoA/RoE should average 2.5%/16% over this time period.
Exhibit 17: RoA/RoE trend (%)
RoA (%)
18.0
12.4
14
28.2
FY21E
14
32.2
FY22E
1.3
FY17
1.7
FY18
2.3
FY19
2.3
FY20E
2.5
FY21E
2.6
FY22E
14.2
16.8
RoE (%)
16.5
16.3
Exhibit 16: Expect 13% PAT CAGR over FY19-22
PAT (INR b)
66
47
33
11
9.2
FY17
13.5
FY18
22.3
FY19
24.8
FY20E
Growth (%)
Source: MOFSL, Company
Source: MOFSL, Company
27 November 2019
7
 Motilal Oswal Financial Services
L&T Finance
Improving profitability in the AMC business
Share of equity among the highest in the peer set
44% total AAAUM CAGR,
60% equity AAAUM CAGR
over FY16-19
3x AAAUM in three years
Along with the parent, L&T MF also witnessed a turnaround from FY17. The
company focused on market share gains, increasing share of equity assets and
cost reduction.
Over FY16-19, AAAUM nearly tripled (44% CAGR) to INR712b.
The company is the 12
th
largest mutual fund in the country in terms of AUM as
of Sep’19. While FY20 has so far been a muted year in term of growth, we
expect 14-15% AAAUM growth FY21 onward.
Equity assets CAGR was at 60% over FY16-19. The share of equity assets
increased from 41% to 55% over this time period.
Note that, at 55%, the share
of equity AAUM is among the highest in the company’s peer set.
Exhibit 19: Sharp increase in share of equity assets (%)
Equity
45
Debt
43
43
43
Growth (%)
Exhibit 18: Expect 14-15% AAAUM CAGR FY21 onward
AAAUM (INR b)
65
39
16
1
244
FY16
339
FY17
559
FY18
712
FY19
722
FY20E
823
FY21E
944
FY22E
27
14
15
67
59
60
52
33
FY15
41
FY16
40
FY17
48
55
57
57
57
FY18
FY19
FY20E FY21E FY22E
Source: MOFSL, Company
Source: MOFSL, Company
Share of equity QAAUM at
54% higher than most
peers.
Exhibit 20: Share of equity QAAUM (1HFY20, %)
54
53
51
50
49
47
39
38
38
37
34
25
L&T
SBI
Nippon
DSP
Axis
UTI
HDFC
FT
IPru
Kotak
ABCL
IDFC
Source: MOFSL, Company, NAVIndia
Share of B30 assets low; Individual investors’ contribution among the
highest in the peer set
The company still has a long way to go in terms of penetration beyond the top
30 cities in India. The share of B30 assets stands at 10-11%, lower than most
peers.
However, in terms of contribution from individuals,
the company ranks second
among large peers– the share of AUM coming from individuals stands at 68%
v/s average of 55% for the top 10 AMCs. This gives the company a granular
and sticky portfolio.
27 November 2019
8
 Motilal Oswal Financial Services
L&T Finance
Broke even in FY17; PAT trajectory upward
PAT to cross INR2b in FY22,
in our view.
Until FY17, L&T AMC was a loss-making company. With a focus on cost control
and increasing the share of high-yielding equity assets, the company delivered a
profit of INR150m in FY18 and INR884m in FY19.
Note that the company incurs
an annual expense of INR500m on the amortization of goodwill created during
the acquisition of Fidelity MF.
While AUM has barely grown in 1HFY20, the company has delivered meaningful
PAT growth in 1HFY20. We expect PAT to grow to INR2.3b by FY22.
Exhibit 21: PAT trajectory
PAT (INR b)
-0.7
-0.6
-0.5
-0.3
0.2
0.9
1.7
1.9
2.3
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
Source: MOFSL, Company
27 November 2019
9
 Motilal Oswal Financial Services
L&T Finance
Valuation and view
Valuations undemanding; AMC provides upside optionality
Over the past year, LTFH has been able to raise adequate debt capital at competitive
prices. The company has balanced liquidity, disbursements and profitability over the
past year in the tough environment.
Over the coming years, management has outlined a clear set of goals – stable ‘NIM +
fee,’ healthy asset quality, retailization of the balance sheet and prudent ALM
management.
The AMC business is on a trend of sustained improvement in profitability. While AUM
growth would be modest in FY20, it is likely to pick up over the medium term.
We have not yet valued the AMC business separately. Buy with a target price of
INR130 (1.3x Sep’21E BVPS).
Exhibit 22: P/B (one-year forward)
P/B (x)
Min (x)
3.5
2.8
2.0
1.3
0.5
1.0
1.9
2.3
1.4
1.1
Avg (x)
+1SD
3.3
Max (x)
-1SD
Exhibit 23: P/E (one-year forward)
32
25
19.5
18
11
4
11.0
15.3
7.0
6.4
P/E (x)
Min (x)
Avg (x)
+1SD
26.7
Max (x)
-1SD
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 24: Valuation matrix
66
Rating
FY21E
HFCs
HDFC*
LICHF
PNBHF
REPCO
Vehicle financiers
SHTF
MMFS
CIFC
Diversified
BAF
SCUF
LTFH
MUTH
INDOSTAR
MAS
ABCL
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
Buy
Neutral
Buy
Buy
Buy
CMP
(INR)
2,304
436
551
290
1,112
343
311
4,099
1,330
103
682
197
711
108
Mcap
(USDb)
55.2
3.1
1.3
0.3
3.6
3.0
3.5
33.4
1.2
2.9
3.8
0.3
0.5
3.4
P/E (x)
FY20E
24.0
7.8
6.7
6.0
8.7
13.6
16.9
38.8
8.1
8.3
10.3
7.9
22.0
13.5
FY21E
17.9
7.2
6.1
5.6
8.0
10.3
14.5
30.6
7.5
7.3
8.9
6.0
18.0
10.2
P/BV (x)
FY20E
3.5
1.2
1.1
1.0
1.4
1.8
3.3
9.4
1.2
1.3
2.5
0.6
3.8
1.4
FY21E
2.7
1.1
0.9
0.9
1.2
1.6
2.7
7.4
1.0
1.1
2.1
0.5
3.3
1.1
RoA (%)
FY20E
1.9
1.3
1.6
2.6
2.7
2.2
2.3
4.1
3.7
2.3
6.4
2.0
4.5
1.9
FY21E
2.0
1.3
1.7
2.5
2.6
2.5
2.3
4.0
3.8
2.5
6.5
2.7
4.6
2.0
RoE (%)
FY20E
15.8
16.3
17.4
18.2
17.2
14.0
21.0
27.2
15.7
16.8
26.2
7.3
19.4
11.9
FY21E
15.9
15.6
16.4
16.6
16.0
16.4
20.4
27.2
14.9
16.5
25.2
8.8
20.2
11.6
Source: MOFSL, Company
27 November 2019
10
 Motilal Oswal Financial Services
L&T Finance
Financials and valuations
Income statement
Y/E March
Interest Income
Interest Expended
Net Interest Income
Change (%)
Other Operating Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Provisions/write offs
PBT
Tax
Tax Rate (%)
PAT before pref dividend
Change (%)
Preference Dividend
PAT to equity shareholders
Change (%)
2015
59,025
35,678
23,347
29.9
4,349
27,697
28.0
10,771
16,926
35.3
6,617
10,309
3,014
29
8,774
47.0
1,102
7,672
47.3
2016
68,174
41,241
26,933
15.4
6,533
33,466
20.8
13,129
20,337
20.2
7,810
12,527
3,990
32
8,567
-2.4
1,671
6,896
-10.1
2017
76,614
46,270
30,343
12.7
9,110
39,453
17.9
12,765
26,688
31.2
15,899
10,789
364
3
10,422
21.7
1,244
9,177
33.1
2018
88,692
54,492
34,200
12.7
13,970
48,170
22.1
14,233
33,937
27.2
19,479
14,458
1,682
12
12,784
22.7
0
12,784
39.3
2019
116,379
68,600
47,779
39.7
16,636
64,415
33.7
23,046
41,369
21.9
10,849
30,520
8,200
27
22,320
74.6
0
22,320
74.6
2020E
126,742
77,021
49,721
4.1
23,229
72,951
13.3
19,715
53,236
28.7
21,439
31,796
6,995
22
24,801
11.1
0
24,801
11.1
2021E
135,605
82,865
52,740
6.1
25,958
78,697
7.9
22,010
56,688
6.5
20,099
36,588
8,415
23
28,173
13.6
0
28,173
13.6
(INR M)
2022E
148,208
89,895
58,313
10.6
28,797
87,110
10.7
24,797
62,312
9.9
20,484
41,828
9,621
23
32,208
14.3
0
32,208
14.3
(INR M)
2022E
19,988
19,988
192,022
212,010
1,099,892
8.6
37
1,311,939
1,170,826
9.0
65,584
10.0
13,497
1,311,939
Balance sheet
Y/E March
Capital
- of which equity share capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Other liabilities
Total Liabilities
Loans
Change (%)
Investments
Change (%)
Net Fixed Assets
Total Assets
E: MOFSL Estimates
2015
30,837
17,203
46,562
77,399
420,906
17.4
29,117
527,422
460,425
18.4
26,492
-3.0
7,185
527,422
2016
29,668
17,534
53,237
82,905
516,157
22.6
38,402
637,463
564,679
22.6
35,633
34.5
6,962
637,463
2017
29,691
17,534
60,202
89,893
598,111
15.9
37,133
725,136
623,145
10.4
60,115
68.7
6,189
725,136
2018
30,301
19,881
91,873
122,174
715,771
19.7
54,335
892,279
793,300
27.3
48,433
-19.4
5,311
892,279
2019
19,988
19,988
116,721
136,709
915,070
27.8
8,772
1,060,551
913,246
15.1
86,408
78.4
11,660
1,060,551
2020E
19,988
19,988
138,645
158,633
934,557
2.1
1,416
1,094,606
987,247
8.1
51,845
-40.0
12,242
1,094,606
2021E
19,988
19,988
163,550
183,538
1,013,227
8.4
229
1,196,994
1,074,629
8.9
59,622
15.0
12,855
1,196,994
27 November 2019
11
 Motilal Oswal Financial Services
L&T Finance
Financials and valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg Yield on Loans
Avg. Yield on Earning Assets
Avg. Cost-Int. Bear. Liab.
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expended/Int.Earned
Other Inc./Net Income
Efficiency Ratios (%)
Op. Exps./Net Income
Asset Quality (%)
Gross NPAs
Gross NPAs to Adv.
Net NPAs
Net NPAs to Adv.
VALUATION
Book Value (INR)
Price-BV (x)
EPS (INR)
EPS Growth YoY
Price-Earnings (x)
Dividend per share (INR)
Dividend yield (%)
E: MOFSL Estimates
2015
13.4
13.1
9.2
3.9
5.2
2016
12.9
12.5
8.8
3.7
5.0
2017
12.6
11.9
8.3
3.6
4.7
2018
12.6
11.6
8.3
3.3
4.5
2019
12.6
12.6
8.4
4.2
5.2
2020E
12.6
12.4
8.3
4.1
4.9
2021E
12.6
12.5
8.5
4.0
4.9
(%)
2022E
12.6
12.5
8.5
4.0
4.9
12.6
1.6
60.4
15.7
10.3
1.2
60.5
19.5
12.4
1.3
60.4
23.1
13.5
1.6
61.4
29.0
18.0
2.3
58.9
25.8
16.8
2.3
60.8
31.8
16.5
2.5
61.1
33.0
16.3
2.6
60.7
33.1
38.9
39.2
32.4
29.5
35.8
27.0
28.0
28.5
14,281
3.1
9,630
2.1
2015
37.1
4.5
47.1
0.8
17,354
3.1
11,540
2.1
2016
40.4
3.9
-11.8
0.8
24,900
3.9
14,610
2.3
2017
44.3
5.2
33.1
0.8
33,000
4.1
16,190
2.0
2018
56.2
6.4
22.9
1.0
55,490
5.9
21,740
2.4
2019
68.4
1.6
11.2
73.7
9.7
1.3
1.2
55,409
5.4
21,940
2.2
2020E
79.4
1.4
12.4
11.1
8.7
1.2
1.1
58,497
5.3
23,293
2.2
2021E
91.8
1.2
14.1
13.6
7.7
1.4
1.3
62,146
5.1
24,913
2.1
2022E
106.1
1.0
16.1
14.3
6.7
1.6
1.5
27 November 2019
12
 Motilal Oswal Financial Services
L&T Finance
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations,
is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary
company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOFSL
(erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of
India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its
stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member
of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance
products.
Details of associate entities of Motilal Oswal Financial Services Limited are available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell
the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a
market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of
interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the
analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in
some of the stocks mentioned in the research report
MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware
that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment
banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at
https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and
Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity
and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities
and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal
Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report
is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to
professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer
or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state
laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934
Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by
MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as
defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on
by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in
only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and
interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a
chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be
executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered
broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading
securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services
license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First
Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising
from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of
"accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be
such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.
Specific Disclosures
1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOSL has not received any compensation or other benefits from third party in connection with the research report
10 MOSL has not engaged in market making activity for the subject company
********************************************************************************************************************************
The associates of MOFSL may have:
-
financial interest in the subject company
-
actual/beneficial ownership of 1% or more securities in the subject company
-
received compensation/other benefits from the subject company in the past 12 months
27 November 2019
13
 Motilal Oswal Financial Services
L&T Finance
other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific
recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there
might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
-
acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
-
be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies)
-
received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider
demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not
considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research
analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be
altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is
based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from
publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made
as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not
constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or
in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be
used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this
report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This
may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at
an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures,
options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied,
is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is
provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The
Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and
the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform
or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is
already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any
locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or
licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose
possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be
liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not
to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses,
costs, damages,
expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai-
400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:
ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration
No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,
NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered
through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk
Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law
Tribunal, Mumbai Bench.
-
27 November 2019
14