L&T Finance Holding - Subscribe - Angel Broking

Diversified loan mix: L&T Finance Holding's (L&TFH) well diversified loan book ranging from small ticket microfinance to big ticket infra loans, provides the company an opportunity to tap into various under penetrated segments and address a broader range of growth opportunities across cycles. In terms of reach, the L&T finance group has presence pan India (23 states, 837 Points of presence). Also, compared to specialised lending NBFCs, L&TFH's risk is much better spread out into the various segments it operates, which reduces the risks associated with any particular segment or customer concentration.

Strong growth track record: L&TFH's loan portfolio has grown at a CAGR of 56.6% over FY2009-FY2011, way ahead of its peers (35.2% for IDFC, 14.5% for Shriram transport). The company has its sights set on the two of the most rapid growing sectors – Infrastructure and rural development, which gives high visibility to its loan growth outlook, driven by higher government spending and substantial latent demand. The net profit of the holding company has grown by 53.4% over FY2010-11, although on a low base.

Strong parentage, but relatively expensive at the upper band: L&T Finance Holding looks well-positioned for growth considering its bolstered capital position post-IPO, diversified loan segments and healthy track record. The diversified loan book also reduces risk emanating from sectoral or customer concentration. That said, it remains to be seen if the company can match the ability of the niche NBFCs in profitably sourcing high-yielding loans, while managing credit risk effectively. At present, based on FY2011 numbers, the company's RoEs were on the lower side compared to peers. Also, there are nearterm macro-headwinds for NBFCs from higher interest rates, slowing credit demand and asset quality concerns, due to which valuations of listed NBFCs have corrected. In the context of its lower RoEs relative to peers and considering the near-term macro-headwinds, the valuations at the upper band look a little expensive in our view at ~2.2x post-IPO Networth (~2.0x at the lower band). Hence, we recommend Subscribe at the lower end of the price band.

Source : Equity Bulls

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