L&T Finance Holdings Ltd | Q3FY20 Result Update | Steady focused book growth with stable asset quality

Hits­:

·         Net Interest Income (NII) grew by 21% YoY to INR 1,423 cr on back of 62bps YoY improvement in NIM to 5.6%

·         Focus book registered growth of 14% YoY to INR 93,957 cr. However, total AUM increased by only 5% YoY to INR 99,454 cr mainly because of 55% YoY/24% QoQ de-growth in de-focus book.

·         Net revenue registered 16% YoY growth to INR 1,841 cr

·         PAT during the quarter remained flat YoY at INR 591 cr as lower tax rate negated the impact of elevated cost to income ratio and credit cost

·         Asset quality remained stable with GS3 / NS3 for Q3FY20 at 5.94% / 2.67% vs 5.98% / 2.83% sequentially

·         LTFH raised INR 10,429 cr of long term borrowings in the current quarter, its highest quarterly borrowings since FY17, reaffirming the strength of its parentage in the current challenging environment

Miss:

• Total disbursements de-grew by 30% YoY to INR 9,561 cr mainly on back of de-growth in all segments. Disbursement in Rural / Housing / Wholesale segments decreased by 5% / 14%/ 63% respectively
• Cost to Income ratio deteriorated by 263 bps YoY to 27.5% resulting to lower growth in operating profits. Operating profit increased by 11.7% YoY to INR 1,334cr
• Credit cost increased by 60 bps YoY to 2.39% resulting to 5.8% de-growth in PBT to INR 729 cr
• Cautious stance by the management led to the lowest quarterly disbursement in the wholesale segment and real estate finance segments since start of FY18

Our View:

·         The company registered steady focused book loan growth in the quarter (in-line with consensus), we believe these are stable results in challenging environment mainly because of a) Stable asset quality especially in wholesale and rural book where the company has exposure towards Assam region in its MFI segment, b) Ability to raise the highest quarterly borrowings in a challenging environment and maintain prudent ALM and c) Rapidly run down its de-focused book.

·         Management’s cautious stance in the real estate finance, LAP and infra book coupled with rundown of the de-focused book is likely to loan growth in check compared to historical run rate. However, focused book growth is expected to remain steady backed by rural and housing segment.

Valuation

At the CMP of INR 127, stock is trading at 1.5x FY21 ABPS

INR crs	Q3FY20	Q3FY19	%change	Q2FY20	%change
Interest income	3,307	3,039	8.8	3,254	1.6
Interest expenses	1,884	1,865	1.0	1,891	-0.4
Net interest income	1,423	1,174	21.2	1,363	4.4
Non-interest income	418	416	0.5	470	-11.1
Net Revenue	1,841	1,590	15.8	1,833	0.4
Operating expenses	507	396	28.0	448	13.2
Operating Profit	1,334	1,194	11.7	1,385	-3.7
Provisions & Contingencies	605	420	44.0	624	-3.0
PBT	729	774	-5.8	761	-4.2
Tax	138	194	-28.9	114	21.1
PAT pre exceptionals	591	580	1.9	647	-8.7
Exceptional Items	0	0	NA	473	NA
PAT	591	580	1.9	174	239.7
Ratio (%)
C/I Ratio	27.5	24.9	263bps	24.4	310bps
Yield	13.1	13.0	12bps	13.0	8bps
NIM	5.6	5.0	62bps	5.5	18bps
Balance Sheet (INR Crs)
Loan & Advances	99,453	94,711	5	1,00,258	-1
Disbursement	9,561	13,682	-30	9,779	-2
Networth	14,606	12,981	13	13,981	4
Asset Quality (%)
GS3	5.94	6.74	-80bps	5.98	-4bps
NS3	2.67	2.64	3bps	2.83	-16bps
Provision Coverage Ratio	57.0	62.0	-500bps	54.0	300bps
AUM Break up (INR crs)	Q3FY20	Q3FY19	%change	Q2FY20	%change
Rural	27,594	24,122	14	26,597	4
Housing	26,689	23,319	14	26,986	-1
Wholesale	39,674	35,170	13	39,472	1
Total Focused book	93,957	82,611	14	93,055	1
De-Focused Book	5,497	12,100	-55	7,203	-24
Total Book	99,454	94,711	5	1,00,258	-1
Disbursement Break up (INR crs)	Q3FY20	Q3FY19	%change	Q2FY20	%change
Rural	5,468	5,734	-5	4,638	18
Housing	2,024	2,350	-14	2,032	0
Wholesale	2,069	5,598	-63	3,108	-33
Total Focused book	9,561	13,682	-30	9,778	-2
De-Focused Book	0	0	NA	0	NA