Motilal Oswal is bullish on Larsen and Toubro Finance Holdings has recommended buy rating on the stock with a target price of Rs 140 in its research report dated July 22, 2019.
Motilal Oswal's research report on Larsen and Toubro Finance Holdings
1QFY20 PAT was largely flat YoY/QoQ at INR5.5b (in-line). The quarter was characterized by slowdown in loan growth, interest write-backs, and increased credit costs due to a one-time provisioning. LTFH marked down 50% of its INR5.7b exposure to a particular HFC, which is now rated D. This led to a sharp increase in credit costs (INR5.8b v/s INR3.7b in 4QFY19). However, we note that the company did not make any macro-prudential provisions in the quarter (INR800m in 4QFY19). LTFH wrote back INR840m interest on some ILFS exposures, which have now been classified as 'green' from 'amber'. Overall loans grew 16% YoY (flat QoQ) to INR999b. We note that LTFH has now classified its structured finance and DCM books as 'de-focused,' as the company believes that it is a marginal player. On the other hand, consumer and SME finance will be two new lines of business for the company. The focused loan book (ex SFG and DCM) grew 2% QoQ/24% YoY to INR905b, driven by strong growth in rural (36% YoY) and housing finance (28% YoY).
Outlook
However, we cut our EPS estimate by 4-8% to account for lower growth. Buy with a TP of INR140 (1.5x FY21E BVPS).
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