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Research
L&T Finance Holdings - Weak quarter - Religare
Posted On : 2013-07-25 22:49:17( TIMEZONE : IST )
LTFH reported weak results for both infrastructure and retail & corporate finance businesses. While NIMs remained stable in the retail & corporate business, advances growth was subdued and asset quality remained under pressure (GNPLs/NNPLs up 89bps/72bps QoQ). PAT for the infrastructure finance business grew 3% YoY as NIMs declined QoQ and provisions were high. A sharp increase in wholesale rates and a change in the loan mix could put further pressure on NIMs. Maintain HOLD.
Retail & Corporate Finance - NIMs healthy but asset quality under pressure: Advances grew by 2.5% QoQ and were primarily driven by rural products (up 8.6% QoQ) and capital markets (up 20% QoQ). However, transport equipment, CEs and the supply chain finance book declined QoQ. NIMs were largely stable QoQ at 6.2% (5.5% in Q1FY13). However, GNPLs/NNPLs increased to Rs 6.2bn/Rs 3.7bn from Rs 4.5bn/Rs 2.4bn in Q4FY13. PAT declined 27% QoQ due to higher opex and credit costs. ROEs dropped from 14.5% in Q4FY13 to 10.3% in Q1FY14 and could remain subdued given asset quality pressures and a likely increase in wholesale rates.
Infrastructure Finance - profitability under pressure: Reported NIMs declined 15bps QoQ and fee income from Rs 201mn in Q4FY13 to Rs 28mn in Q1FY14. GNPLs/NNPLs increased from Rs 2.1bn/Rs 1.7bn in Q4FY13 to Rs 2.2bn/Rs 1.8bn in Q1FY14 and credit costs from Rs 394mn to Rs 519mn. Advances growth also moderated to 2.6% QoQ (36% YoY off a low base). ROEs declined from 18.7% in Q4FY13 to 13.1% in Q1FY14.
Valuations rich; maintain HOLD: As per management, asset quality pressures are likely to persist in Q2FY14. Moreover, the recent tightening of liquidity and increase in cost of funds could put pressure on NIMs, especially as pricing power remains weak. Valuations too are expensive vis-Ã -vis peers (lending businesses trading at ~2.2x FY14 BV). While losses in the AMC businesses have come down, these would continue to impact consolidated ROEs. Maintain HOLD with a TP of Rs 85/share.
