L&T Finance Holdings Ltd - Not Rated - Q3 FY23 Call Takeaways - YES Securities

Retail Portfolio & Mix

- Market share in Tractors 15% (No. 1 player), 2w 11% (No. 4 player) and Micro Loan 6% (No. 4 player)

- Retail products loan demand expected to remain robust till H1 FY24 - healthy Rabi sowing, good Kharif realization, NAREGA wages higher than previous year, rural unemployment. rate has declined as per CMIE

- Retail Book CAGR to be >25% over the coming years

- Confidence stemming from a) on-ground capabilities, b) rapid scaling of recently launched products, c) geo-agnostic Planet app capabilities, d) AAA-rated liability franchise, e) integration of Fintech partners, f) analytics on database of 2cr customers and g) increasing distribution

- Mostly Retail AUM share would reach around 90% by March 2024 - co. now wants to achieve the targeted wholesale sell-downs by FY24

- Heathy customer retention of >30% for loan products - represents cross/up selling of products

- Envisioning Planet App to become a full-fledged market-place - augmenting customer acquisition, retention, and servicing - will offer more value-added services in future

- Soon to have self-driven 2w loans journey for customers

- Rural Business Finance: 1) highest-ever Q3 disbursements based on customer retention and collection discipline, 2) expect to sustain momentum with launching of new products like Rural LAP

- Consumer Loans: 1) 400cr monthly run-rate, 2) repeat customers % increasing on account of active data analytics, 3) launched higher-ticket salaried PL

- Home Loans: 1) enhancing disbursement volume through DSA engagements and geographical expansion, 2) reducing book attrition through proactive interventions and 3) share of SE customers at 33% in HL disb v/s 12% last year

- SME Finance: 1) steady pick-up since launch in Q3 FY22, 2) monthly disbursements now reached Rs200cr with channel expansion and operationalization at more locations, 3) launched new product called drop line OD facility

Co-level RoA/RoE to be driven by Retail portfolio and Segmental mix change

- Currently, Retail RoA/RoE at 2.6%/15% - Retail RoA will reach 3% faster than earlier thought

- Co. may look excessively capitalized in FY24 due to sharper pace of wholesale sell-downs

- Board may take a decision on giving out special dividend or any other thing

- BS leverage will increase in FY25

- Overall GS3 increase in % due to de-growth in wholesale book

- Collection robust across all businesses/products - operational efficiencies to kick-in now

- Retail NIM + Fees at 11.3% - will maintain above 11% in medium term even after factoring the changes in product mix and tenor

- Significant yield hike taken in Micro Loans, Consumer Finance and 2W loans - maximum pass-on done in HL and Infra loans

- Talking to insurance partners to better the fee yield

- Currently, Retail Opex + Credit Cost at 7.5% - this will come down to 7% in medium term - collection and credit costs are fungible

- Avg. CP share during the quarter at 9% - as loan portfolio duration comes down, there will be more opportunity to tap short-term funding

- Quarterly WACC at 7.54% vs.7.3% in Q2

Wholesale Portfolio (Infra & RE loans)

- Management and Board decided for accelerated sell down v/s normal rundown to create maximize value for shareholders - one of the key risks it addresses is event/time risk

- One-time prov of 2687cr in Q3 made for accelerated sell-down - about Rs350-360bn is the wholesale portfolio including SRs

- 3rd party valuation of the wholesale portfolio came close to the net carrying value

- The one-time provision mainly represents illiquidity discounts - significant credit provisions already carried

- Eventually, the one-time provisions may not be fully consumed/utilized

Shares of L&T Finance Holdings Limited was last trading in BSE at Rs. 95.20 as compared to the previous close of Rs. 95.15. The total number of shares traded during the day was 826407 in over 5542 trades.

The stock hit an intraday high of Rs. 95.55 and intraday low of 93.00. The net turnover during the day was Rs. 77908404.00.

Source : Equity Bulls

Keywords

LandTFinanceHoldings INE498L01015 YESSecurities Q3FY23 CallTakeaway