Comments
HSBC Global Research
L&T Finance Holdings (Buy)
CMP: ₹96.7
Target: ₹130
Adjusted earnings higher on account of lower tax outgo: Adjusted profits at ₹650 crore were about 20 per cent higher than our expectations on account of lower tax outgo for the quarter at an effective rate of 14 per cent. However, reported profit for the quarter came in at ₹175 crore on account of a one-time charge of ₹473 crore on account of change in opening Deferred Tax Asset (DTA) due to transition to proposed lower corporate tax regime. Net operating income (+10 per cent yoy / +3 per cent qoq) and pre-provisioning profit (+18 per cent yoy / +1 per cent q-o-q) were in line with estimates. Annualised credit cost of 2.3 per cent was also largely in line with expectations and similar to 1QFY20 credit cost.
Outlook: We adjust our FY20-22e earnings by -3 per cent to 21 per cent in order to factor in lower tax outgo going forward. We retain a BUY rating with a revised TP of ₹130 (₹120 previously) as valuations are undemanding. Management has maintained a fine balance between growth and asset quality. Risks associated with asset quality outlook of the wholesale mortgage loans appear priced in.
Downside risks: 1) Asset quality risks in the developer financing book remain elevated; and 2) maintaining strong fee income momentum on a rapidly growing balance sheet is a key risk.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.