L&T Finance Holdings: Analysts remain bullish on ‘stable asset quality’

Our Bureau Chennai | Updated on January 21, 2020

Shares of L&T Finance Holdings, which plunged over 7 per cent on Monday after announcing flat Q3 results, ended in the green on Tuesday with marginal gains. Analysts remained positive on L&T Finance Holdings, as some see better asset quality for the company.

L&T Finance Holdings, on Saturday, reported just 2 per cent increase in consolidated net profit for the third quarter at ₹591.47 crore, against ₹580.46 crore reported in the same period a year ago. Total revenues grew 9 per cent at ₹3,735.79 crore (₹3,445 crore).

According to analysts, asset growth moderated during the December quarter, due to drop in loans from defocussed business.

Global investment advisory firm Goldman Sachs said while exposure to real estate, infra and certain geographical exposure in MFI could pose headwinds, L&TFH’s diversified revenue drivers and strengthening balance sheet/liquidity provide comfort on its ability to absorb asset quality shocks without compromising on growth/capital.

Goldman Sachs, which maintains its ‘buy’ rating on the stock with a price target of ₹154, said sharper-than-expected decline in defocus book with credit costs under control, in-line growth in focus segments weighed towards infrastructure, as rural/housing impacted by weaker macro, lower-than-expected credit costs, improving balance sheet strength with reduction in leverage and ability to raise long-term borrowings are key takeaways from the result statement.

Healthy show

Over the past year, LT F&H has reported healthy operating performance and asset quality, despite the tough liquidity situation. It continued to ‘retailise’ the loan book while running down the de-focussed segments.

“While asset quality has been maintained so far, there are risks, given the overall economic scenario in its key products like retail and builder finance,” said Motilal Oswal Securities, which maintains its ‘buy’ stance with an increased target price of ₹145.

HSBC Global while retaining its ‘buy’ rating with a revised target price of ₹150 (₹148 earlier), said: “We think current valuations factor in any near-term uncertainties pertaining to growth and asset quality, which, in the event of not getting materialised, could lead to a valuation re-rating for the stock.”

JM Financial too retains its ‘buy’ rating and target price ₹140.

However, for Emkay Global, it is still a ‘sell’ candidate. “We largely maintain FY21/FY22 EPS but increase FY20 PAT by about ₹200 crore for the sale of the wealth management business. Thus, we raise the ‘sell’ target price to ₹98 from ₹85,” it said.

Published on January 21, 2020

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