L&T Finance - Riding Retailisation To Deliver Improved Profitability: Motilal Oswal

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

Motilal Oswal Report

L&T Finance Holding Ltd. has exhibited a strong commitment to running down its wholesale book efficiently, resulting in a notable decline to ~Rs 70 billion (~9% of the Loan mix). Concurrently, the retail mix has improved to ~91%, with broad-based growth across all its core retail segments.

Retail Loans grew at a compound annual growth rate of ~25% with rural business finance (MFI) growing at CAGR of ~26%, 2W at ~15%, farm equipment at ~12% and home loans at ~25% over FY21-9M FY24. After a period of post-Covid consolidation, loan against proporty has resumed its growth trajectory with ~28% YoY growth.

Mr. Sudipta Roy assumed the role of CEO of L&T Finance effective January 2024. He aims to leverage his expertise/relationships from his previous role at ICICI Bank Ltd. to further improve credit underwriting practices and strengthen the franchise’s position.

Back in Q3 FY23, L&T Finance utilised the entire proceeds from the sale of its asset management business for marking down the wholesale book by taking a one-time provision of ~Rs 27 billion to account for illiquidity discounts.

We do not anticipate any significant incremental impact on the P&L from rundown of the residual wholesale book. Management has guided for an annualized drag of ~Rs 1.5-2 billion from the wholesale book over the next two years.

Through strong execution in retail, we expect L&T Finance to deliver a profit after tax CAGR of ~33% over FY23-FY26E. This will result in a return on asset/return on equity of 2.7%/15% in FY26E.

We reiterate our 'Buy' rating on the stock with a target price of Rs 200 (based on 1.8 times FY26E price/book value).

Key risks are-

asset quality deterioration in relatively vulnerable segments such as Personal Loans and MFI and
the possibility of weaker growth in retail loans from any economic slowdown.

Click on the attachment to read the full report:

Motilal Oswal L&T Finance Holding Update.pdf

Read Document

Also Read: SEBI Proposes Changes To Rules For Foreign Investors

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.