L&T Finance Holding Ltd | Q1FY20 Result Update | Disbursements slowdown

22 Jul
Finance

L&T Finance Holding Ltd | Q1FY20 Result Update | Disbursements slowdown

Disbursements slowdown; Credit Costs higher due to markdown on defaulted HFC

Deep Dive Analysis (Q1FY20)­­

  • Net interest income for the quarter grew by 30% YoY to INR 1,369cr on back of an 127 bps increase in yield to 13.22% coupled with an 16% YoY growth in total AUM. The focused book increased 24% YoY to INR 90,501cr while the defocused book (now inclusive of the Structured Corp Finance and DCM books) de-grew by  28% YoY. The company also recognized INR 84 Cr of interest income related to IL&FS exposure which was deferred in Q3 and Q4 FY19 which has resulted in slightly higher NII for the quarter
  • NIM increased by 61 bps YoY and 43 bps sequentially to 5.51%
  • Net revenue grew 25% YoY to 1,765cr (higher than market estimation of INR 1,619cr) as non-interest income registered an growth of only 10.3%
  • Operating expenditure grew by 28% YoY to INR 422cr, as against 25% YoY growth in net revenue, leading to PPoP growth of 24% YoY to INR 1,343cr, against market estimation of INR 1,096cr. Consequently, Cost-to-income ratio increased by 52bps YoY to 23.9%.
  • Provisioning for the quarter stood at INR 595cr including an 50% markdown of INR 284 cr on an exposure of INR 567cr to an HFC which was downgraded to D rating in the quarter. Hence, credit cost for the quarter came in 2.39% as against 1.91% seen in Q4FY19 and 1.66% seen in Q1FY19
  • Consequently, PBT and PAT for the bank grew by 3%/2% YoY to INR 748cr/INR 549cr respectively, almost in-line with consensus of ~INR 557cr.

Disbursements witness de-growth across segments; Focused Book continues to grow at robust pace

  • Disbursements registered a de-growth 36% YoY to INR 9,608 cr while also declining 28% on a sequential basis
  • Within the focused book, the company witnessed robust growth in both the rural/housing books which grew by 35%/28% YoY respectively while infrastructure finance book grew by 14% YoY. Overall the Focused book showed an growth of 24% YoY to INR 90,501 cr
  • The de-focused book now also constitutes DCM and Structured Corporate Finance book which on an adjusted basis showed a de-growth of 28%. Defocused book now constituted ~10% of the overall book as of Q1FY20

    Asset Quality remained stable

  • GNPA/NNPA stood at 5.7%/2.5% in Q1FY20 as against 5.9%/2.4% in Q4FY19 which is an minor improvement on GNPA
  • PCR stood at 58.1% vs 62.0% in Q1FY19 and 61.0% in Q4FY19

     Other Highlights

  • CAR- 18.38%; Tier I – 15.05%; Tier II – 3.33%
  • Term sheets for 3 Amber entities (INR 1492 Cr out of INR 1612 Cr total exposure) have been signed by IL&FS to convert to “Green” and the execution of the binding documents is in progress

Our View:

Positive:

  • Focused book growth continued to be robust with high growth rates continuing in Rural and Housing books
  • Majority (93%) of its IL&FS exposure will now be “Green”

Negative:

  • Markdown of 50% taken on defaulted HFC exposure of INR 567 cr

Valuation

At the CMP of INR 110, stock is trading at 1.2x FY21 ABV

INR crs Q1FY20  Q1FY19  %change  Q4FY19  %change
Interest income 3287 2564 28.2 3046 7.9
Interest expenses 1918 1512 26.9 1832 4.7
Net interest income 1369 1052 30.1 1215 12.7
Non-interest income 396 359 10.3 403 -1.7
Net Revenue 1765 1411 25.1 1618 9.1
Operating expenses 422 330 27.9 405 4.2
Operating Profit 1343 1081 24.2 1213 10.7
Provisions & Contingencies 595 356 67.1 457 30.2
PBT 748 725 3.2 756 -1.1
Tax 199 187 6.4 208 -4.3
PAT 549 538 2.0 548 0.2
Paid-up Capital 2000 1999 0.0 1999 0.0
Adj. EPS (INR) 2.75 2.69 2.0 2.74 0.1
Ratio (%)
C/I Ratio 23.9 23.4 52 bps 25.0 -112 bps
Yield 13.22 11.95 127 bps 12.75 47 bps
Cost of funds 8.59 8.29 30 bps 8.53 6 bps
Spread 4.63 3.66 97 bps 4.22 41 bps
NIM 5.51 4.90 61 bps 5.08 43 bps
Balance Sheet (INR Crs)
Loan & Advances 99,904 86,321 15.7 99,121 0.8
Disbursement 9,608 15,033 -36.1 12,774 -24.8
Asset Quality (%)
GNPA 5.7 7.9 -221 bps 5.9 -18 bps
NNPA 2.5 3.2 -69 bps 2.4 8 bps
Provision Coverage Ratio 58.1 62.0 -389 bps 61.0 -289 bps

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