Markets

Broker's call: L&T Finance Holdings (Buy)

| Updated on November 20, 2018 Published on November 20, 2018

Motilal Oswal

L&T Finance Holdings (Buy)

CMP: ₹131.2

Target: ₹175

Over the past two years, L&T Finance Holdings has transformed itself from a company with 20+ product lines and sub-standard return ratios to a focussed financier with eight product lines across three verticals – the target to achieve an 18-20 per cent RoE by FY20 (13 per cent in FY18).

 With focussed management and strong execution skills, the company is set to deliver 19 per cent loan CAGR over FY18-21E, driven by growth in the rural and housing finance segments. In addition, continued origination and down-selling in the infra finance book is likely to drive the company’s fee income traction, resulting in an elevated RoE.

Strong growth, a pick-up in core fee income and a decline in expense ratio/credit costs should elevate RoA/RoE from 1.7 per cent/14 per cent in FY18 to 2.3 per cent/19 per cent in FY20. The company has also set aside ₹200 crore as extraordinary provisions.

The parentage of the company has ensured that liquidity has been available at competitive rates, despite the tight operating environment.

We keep our EPS estimates for FY19/20 unchanged. Maintain Buy with a TP of ₹175 (2.0x September 2020E BVPS).

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Published on November 20, 2018
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