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Prabhudas Lilladher
L&T Finance Holdings (Accumulate)
CMP: ₹136.8
Target: ₹172
L&T Finance Holdings earnings surprised positively on back of benefit from movement to IND-AS accounting on P&L especially on fees, recognition of losses on sell down assets and lower provisioning. NII grew 21 per cent y-o-y and PAT at ₹580 crore recording stupendous 81 per cent y-o-y growth as NIM+fees grew healthy despite run-down in wholesale book, provisions coming lower y-o-y (down 9 per cent), benefits from sell downs and liquidity sufficiency on balance sheet thereby aiding voluminous growth at 23 per cent y-o-y (lending AUM ₹93,700 crore.
Retailisation of balance sheet and complete transmission of cost pressures maintained NIM at steady levels of 5.1 per cent. While declining Stage 3 assets and prudential provisioning for contingent times (₹270 crore) are welcoming moves, the uncertainty around exposures towards SPVs of ILFS’ subsidiaries especially in light of stay order on group company’s modus operandi, questionable Supertech exposures (ones in Noida where LTFH is a sole lender) and the small yet culpable exposures to Kerala deluge and Odisha MFI issue (₹75 crore) should remain an overhang. With continued strong trend on loans and earnings, we tweak our loan/earnings estimates slightly upwards, remaining mindful of possibility of worsening asset quality and elevated provision requirement.
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