Buy L&T Finance Holdings Limited for a potential gain of 49%: LKP Securities

1. Stock market outlook

The current market price of the share is 73.70 on NSE and the target price that the brokerage company has specified is 110 rupees. If investors invest in the stock today, they can see upside potential of 49.25%. The stock hit its 52-week high at Rs 101.10 each and its 52-week low at Rs 58.50 each.

Current market price Target price Potential gain
73.7 110 49.25%
2. Retailization to drive future growth

2. Retailization to drive future growth

The company has a long-term focus on retail books, something management has repeatedly reiterated. The retail portfolio grew at a CAGR of 20% in fiscal year 2016-22, while the rural portfolio grew at a CAGR of 26% in the previous six years. At the end of FY22, the share of retail books in total assets under management (AUM) was 51% compared to 26% in FY16.

Wholesale book has seen a steady decline with 47% market share at the end of FY22 compared to 57% in FY16. The company recorded the highest ever quarterly and annual cash outflows in 4QFY22, resulting in 42% YoY growth in FY22 to ₹249bn in disbursements and 22% YoY growth in 4QFY22 to ₹81bn. Through improved field collection efforts and analytics-based resource allocation, the company remained a leading retail financier, with the retail portfolio growing by 6 % in sequential.

3. Strong liability deductible and sound asset-liability management

3. Strong liability deductible and sound asset-liability management

In FY22, the company’s long-term bonds were upgraded from AA+ to AAA ratings. A rating upgrade resulted in the lowest ever weighted average cost of funds in FY22 at 7.3%. The company is diversifying its bank borrowings from ECBs and has raised granular liabilities through retail NCDs (non-convertible debentures). L&TFH consistently maintains an ALM (Asset Liability Management) surplus of less than a month of surplus of ₹321 billion and the excess liquidity for the period 6-12 is 258 billion rupees.

The company’s PAT is 10,700 in 2022 FY. ROE is 5.4% for 2022 and is expected to increase to 7.6% in 2023 and 8.6% in 2024.

4. Continuous improvement in asset quality

4. Continuous improvement in asset quality

According to LKP Securities, “L&TFH’s asset quality improved despite the pandemic. The increase in gross phase 3 (%) in FY17 and FY18 was mainly due to the change in standards. At the start of the pandemic, the GS3 was 5.9%, which dropped to 3.8% at the end of FY22. At the end of FY22, the GS3 of rural finance, housing finance and infrastructure financing amounted to 3.97%, 7.83% and 0.75% respectively with a PCR of 75%, 29% and 34%.The company carries an additional provision (excluding PCR) of 23, ₹5 billion (2.85% of total standard assets).”

5. Valuation

5. Valuation

Given the lower weighted average cost and improved collections, as well as strong business momentum supported by accelerating retail growth, we see immense potential in the stock over the long term. We recommend BUY on L&TFH with a target price of ₹110.

6. About the company

6. About the company

L&T Finance Holdings (LTFH) is a leading and well-diversified non-bank financial company (NBFC). It offers a range of financial products and services in rural housing and wholesale finance, as well as mutual fund products and wealth management services. Its wholly owned subsidiaries include L&T Finance Ltd, L&T Housing Finance Ltd, L&T Infrastructure Finance Company Ltd, L&T Investment Management Ltd, etc. Its market capitalization is Rs 18,240 crore.

The lending business includes rural finance (agricultural equipment finance, two-wheeler finance, micro-loans and consumer loans), housing finance (housing loans, loans against property and real estate) and business finance. infrastructure.

Disclaimer

Disclaimer

The stock was taken from the brokerage report of LKP Securities Ltd. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.