Motilal Oswal has given Buy recommendation for Larsen and Toubro recommended buy rating on the stock with a target price of Rs 110 in its research rep with a target price of Rs. 110 in its research report issued on Dec 24, 2021
Motilal Oswal’s research report on Larsen and Toubro
L&T Financial Holdings (LTFH) has entered into a definitive agreement with HSBC AMC, in which the latter will acquire 100% stake in L&T Investment Management (LTIM), the investment manager of L&T Mutual Fund (LTMF), for USD425m. In addition, LTFH will also be entitled to excess cash (INR5-7b) in LTIM’s books until the completion of this divestment/acquisition. Including the excess cash (except the minimum cash requirement of INR0.5-1b) that LTFH is entitled to, the total sale consideration would be INR37-39b (4.6-4.8% of current AUM). HSBC AMC would merge its existing Asset Management business (Sep’21 AUM of INR117b) with that of LTMF (Sep’21 AUM of INR803b). Subject to all regulatory approvals, LTFH expects this transaction to be completed within the next 9-12 months (i.e. by Dec’22). -Consequent to its last rights issue in Feb’21, wherein LTFH raised INR30b, its capital adequacy is at a healthy ~25% (Tier I: 20%). While the sale of the Asset Management business will take another 9-12 months to be consummated, we believe LTFH will utilize the proceeds primarily for risk capital (improving the provisioning cover) and only a small portion for growth capital (given its already healthy capital adequacy). Alternatively, part of the gains from this transaction could also be paid out as dividends. As highlighted earlier, LTFH is near the bottom in terms of consolidation of its loan book and should start exhibiting loan growth in 2HFY22E. NPA recognition of a large Real Estate account in 2QFY22 has removed an overhang of potential asset quality stress and will allow LTFH to work towards its resolution.
We have not made any changes to our estimates (as yet) and factor in a 7%/11% loan growth in FY23E/FY24E. We maintain our Buy rating with an unchanged TP of INR110 per share (1.2x Sep’23E consolidated BVPS)