L&T Finance Holdings Research Reports By Angel Broking, Axis Direct & PL

Research report by Angel Broking

L&T Finance Holdings Ltd (LTFH), promoted by L&T Ltd (64.2%) is a leading NBFC with a diversified lending portfolio. Over the last one year the management has restructured its business model and is focusing on selective segments where it has competitive advantage, simultaneously downsizing some products which were making losses.

Range of offerings across diversified book: LTFH’s lending operations are focused on three primary segments viz. Rural 15% (Micro Finance, 2Wheeler & Tractors), Housing 19% (Home Loans, LAP & Builder loans) and Wholesale finance 62% (Renewable Energy, Operating Roads, etc.) of loan book. While the above segments will be the growth drivers, the management has started downsizing unattractive range of products.

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Outlook & Valuation: As LTFH operates in multiple segments, we have valued it based on SOTP. We have valued the rural finance segment at 2.5x, while the housing finance and wholesale finance has been valued at 3x and 2x its FY2020E BV each. LTFH’s AMC arm, L&T MF has been valued at 5% of average AUM. Accordingly, we have arrived at a fair value of Rs 179 based on SOTP, and hence recommend BUY on the stock.

Research report by PL

LTFH saw beat in earnings on back of better fee income and tax write back from goodwill amortisation from merger but these gains were used to further strengthen weaker part of balance sheet by voluntary provisions on potential shocks and move towards regulatory requirement. Operational levers have started to play out on fees/opex/topline, while these tax efficiencies will continue for some time ahead, LTFH will use these gains to further take voluntary provisions. We believe ROEs are on improving trajectory with medium risk to asset quality especially in the infra business. Improving ROEs with growth and run down in defocused businesses are going to be key for LTFH valuation going forward. We believe that the company is strongly on the recovery path and we expect the stock to get rerate upwards with an expansion in P/ABV as they keep improving their capital return ratios and strong growth. We maintain BUY with revised PT of Rs210 (revised from Rs140) based on 2.9x Mar‐20E ABV.

Research report by Axis Direct

Strict cost controls, sanguine growth outlook in focused businesses and option value from disposal of defocused businesses bode well for the company.