L&T Finance Holdings: Provisions to remain elevated in FY19; Retain ADD

Equirus | April 16, 2018, 1:08 p.m.

We recently met the management of L&T Finance (LTFH) and key takeaways are: (1) Post RBI’s recent guidelines on restructuring, LTFH’s stressed wholesale assets (SWA) would likely remain contained at ~Rs 50bn-55bn. (2) FY19E SWA provisions would be at ~Rs 10bn-12bn as loss estimates have been raised by ~Rs 5bn-6bn to ~Rs 25bn-27bn. (3) Wholesale loans sourced post FY12 continue to perform well. (4) FY19E loan growth of ~20% would be led by rural/housing growth of ~25-30% each. (5) ~52% of borrowings have a fixed rate with blended cost of ~8% and a four-year residual maturity. We tweak FY19E/FY20E estimates as we (1) raise provisions, (2) revise down FY18E-FY20E loan CAGR to ~18% and (3) build in FY19E/FY20E NIMs of 5.2%/5.4%. Retain ADD with a SOTPbased Mar’19 TP of Rs 190 (Rs 195 earlier) set at 2.5x FY20E ABV.

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