Prabhudas Lilladher has given Buy recommendation for Larsen and Toubro Finance Holdings with a target price of Rs. 88 in its research report issued on Oct 25, 2022
Prabhudas Lilladher’s research report on Larsen and Toubro Finance Holdings
We maintain our ‘BUY’ rating in anticipation of company continuing to increase retail portion in their overall book to at least 60% by end of FY23 which is currently at 58%. On the OTR front Rs4.22bn of retail finance loans that had moved to 90+dpd have been fully provided for and the management believes the impact of OTR in unsecured loan business is over. LTFH’s Q2FY23 earnings (PAT at Rs4.0bn) stood above our estimates (PLe: Rs2.8bn) on account of lower provisions and better than expected AUM growth. Overall loans at Rs 900.9bn grew 2.3% QoQ and 3.66% YoY, higher than our estimates of Rs 898bn. Rural loans saw strong growth of 9% QoQ/30% YoY, whereas wholesale business saw a 5% QoQ sequential de-growth in line with management strategy to shift focus to retail. Housing Loans (Home Loans+LAP) witnessed strong growth of 6%/13% on QoQ/YoY basis bettering the 4%/6% growth shown in Q1FY23, thanks to a strong 8.7% QoQ growth in home loans.
Outlook
We believe that LTFH has walked the talk in terms of retail loan growth, but will have to sustain this growth momentum in second half of FY23 and also continue to grow its overall AUM as it has managed to do in Q2’23. We reckon that LTFH valuations will improve when proportion of retail loans continue to go up over the course of FY23 and asset quality continues to be stable. Against this backdrop, we maintain our ‘BUY’ rating and maintain our TP at Rs88 valuing the core business at 1x Sep’24E PABV.