L&T Finance Holdings - IndiaNivesh

Impressive growth along with margins improvement, asset quality slightly down... revised target upwards to Rs63 from Rs58....

- LTFH's loan book growth remains robust at 27% yoy (6% qoq). L&T infra (LTIF) registered a higher loan growth comparatively at 32% yoy (8% qoq) while L&T Finance (LTF) of 24% yoy (4% qoq).

- Asset quality (cons) witnessed a marginal pressure with increase of 18 / 7 bps qoq in Gross/ Net NPA. LTIF's Gross / Net NPA increased by 26 / 17 bps and LTF by 11 / 10 bps qoq. Excess provisioning of Rs 720 mn in LTIF and Rs 890 mn in LTIF over the regulatory requirement remains the key positive.

- NIMs (cons) surprised positively with increase of 19 bps qoq to 5.8% mainly due to sequential decline in cost of funds of 30-31 bps each in both financing subsidiaries. NII was ahead of expectation at Rs 3.8 bn, increase of 31% yoy.

- Net profit was up 13% yoy to Rs 1.4 bn, cautious approach for maintaining excess provisioning continues with increase of 62% yoy (110 bps credit cost vs 83 bps in Q2FY12). Lowering our earnings by 1% each for FY13E and FY14E to factor in the higher provisioning.

LTFH Q2FY13' results were impressive and ahead of our / street expectation with strong growth in overall loan book driven by sequential increase in disbursals in both financing subsidiaries. NIMs surprised positively with increase of 19 bps as against our expectation of stable margins mainly due to decline in cost of incremental borrowings from Mutual funds and insurance companies. Asset quality witnessed pressure but LTFH's cautious approach of maintaining excess provisioning drives comfort on this front. While we have increased our estimates on Net income by 2% each for FY13E and FY14E on back of expansion in margins, earnings are revised downward by 1% each to factor in the excess provisioning with credit cost of 90 bps as against 70 bps in FY12.

At CMP of Rs 54, the stock is trading at P/ABV of 1.9x and 1.7x for FY13E and FY14E respectively. We continue to maintain BUY on stock with upward revised target price of Rs 63.

Source : Equity Bulls

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