IPO Note – L&T Finance Holdings Ltd - Fullerton Securities

Diversified business model with strong distribution network: The company has a diversified business model with focus towards high growth business segments like corporate, retail and Infrastructure sectors through four core business groups viz. Infrastructure Finance, Retail Finance, Cororate Finance and Investment Management groups. It has presence across 23 states in India comprising 117 branch offices, 269 meeting centres, 37 Kisan Gaurav Seva Kendra (KGSK) centres, 414 customer care centres and 837 point-ofpresence. Through well defined business groups, extensive pan-india network and exposure to high growth priority secotrs like Agriculture, Infrastructure, Energy and Micro finance it caters to a large customer base ranging from retail customers to small, medium and large enterprises helping it to mitigate risk and provide steady revenue visibility.

Healthy credit quality and Diversified loan book: During FY09-11 period the consolidated loan book grew at a CAGR of 56%. The retail & corporate book grew at CAGR 41% while the infrastructure financing book reported a strong growth of 78% CAGR over the same period. As on March 31, 2011 the company had a loan portfolio of Rs. 175.1 billion, out of which 65% were larger ticket exposures, balance 35% were retail loans. The Gross NPA has improved from previous year figure of Rs 2.73 billion and currently stands at Rs 1.92 billion. Company made provision of Rs 104.9 crore to the Gross NPAs which is higher than the minimum amounts required by RBI. In the microfinance segment, the asset quality appears to be quite healthy with no NPA. This stands as an advantage for the company to sustain and grow in this business segment.

Experienced team and Strong Brand Equity: The senior management team has vast experience and proven track record in diverse industries. The 4395 employee strength provides deep industry-specific understanding along with products and geographic regions that they cover. The company leverages these strengths to build strong customer relationships and extend knowledgeable support. L&T brand is one of the most well respected brands in India providing it with a significant competitive advantage, particularly in attracting new customers, talent and accessing capital.

Outlook and Valuation: With its presence in infrastructure and retail finance we believe L&T Finance Holdings is likely to benefit from growth opportunities in these segments. The company has a scalable business model that will help it to expand its book size which is currently smaller as compared to its peers. However, exposure towards the infrastructure and micro-finance segment and rapid loan growth pose risk to the asset quality issues during a period of slowdown. We expect its return ratios to improve as the company leverages its enhanced capital base and continues to grow at a pace faster than the industry. The IPO is reasonably priced at P/B of 2-2.2x on lower and upper bands. We recommend 'Subscribe'.

Source : Equity Bulls

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