Stocks

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

| Updated on November 04, 2019 Published on November 05, 2019

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.

Published on November 05, 2019
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