Buy L&T Finance Holdings Limited For A Potential Gain Of 49%: LKP Securities

LKP Securities, leading brokerage firm, has given a buy rating to the stock of L&T Finance Holdings Limited with a likely gain of 49.25%. The broker has suggested investors to buy the stock as it has the potential to reach Rs 110 from current market price. L&TFH is on track to achieve its LAKSHYA 2026 goals of retailisation (80% contribution) with retail growth of approximately 25% CAGR (Compound annual growth rate). Asset Quality is improving steadily and GS3 target of less than 3% can be achieved before envisioned.

1. Stock Outlook

The current market price of the stock is 73.70 on NSE and the target price that the brokerage firm has specified is Rs 110. If investors invest in the stock today they can see a potential upside of 49.25%. The stock has touched its 52-week high of Rs 101.10 apiece and 52-week low of Rs 58.50 apiece.

Current Market Price	Target Price	Potential Gain
73.7	110	49.25%

2. Retailisation to drive future growth

The Company has a long-term focus on retail book, which the management has reiterated several times. The retail book grew at CAGR of 20% over FY16-22, while rural portfolio grew at a CAGR of 26% over previous six years. At the end of FY22, the retail book share to the total AUM (Asset Under Management) stood at 51% against 26% in FY16.

The wholesale book has been witnessing consistent drag down with 47% share at the end of FY22 against 57% in FY16. The company witnessed highest ever quarterly and yearly disbursement in 4QFY22 which led to growth of 42% YoY in FY22 to ₹249bn of disbursements and a growth of 22% YoY in 4QFY22 to ₹81bn. Owing to enhanced on-ground collection efforts and analytics based resource allocation, the company remained one of the leading retail financiers, as the retail book increased by 6% sequentially.

3. Strong liability franchise and healthy Asset Liability Management

In FY22, the company's long-term bonds upgraded from AA+ rating to AAA. A rating upgrade has resulted in lowest ever weighted average cost of funds in FY22 at 7.3%. The company is diversifying its borrowings from banks to ECBs and raised granular liabilities through retail NCDs (non-convertible debentures). L&TFH is consistently maintaining an ALM (Asset Liability Management) surplus of less than 1-month surplus of ₹321bn and liquidity surplus for the period of 6-12 is at Rs 258bn.

The PAT of the company is 10,700 in 2022 FY. The ROE is 5.4% for 2022 and expected to go up to 7.6 % in 2023 and 8.6% in 2024.

4. Consistent improvement in asset quality

According to LKP Securities, "L&TFH's asset quality improved despite pandemic. The increase in Gross Stage 3 (%) during FY17 and FY18 was primarily due to change in norms. At the start of pandemic, the GS3 was 5.9% which ran down to 3.8% at the end of FY22. At the end of FY22 the GS3 of rural finance, housing finance, and Infrastructure finance stood at 3.97%, 7.83% and 0.75% respectively with PCR of 75%, 29%, and 34%. Moreover, the company is carrying additional provision (outside of PCR) of ₹23.5bn (2.85% of total standard assets)."

5. Valuation

Factoring lower weighted average cost and improved collections along with strong business momentum backed by accelerated retail growth, we see immense potential in the stock for long term. We recommend BUY on L&TFH with a target price of ₹110.

6. About the company

L&T Finance Holdings (LTFH) is a leading, well-diversified Non-Banking Financial Company (NBFC). It provides a range of financial products and services in rural housing and wholesale finance sectors along with mutual fund products and wealth management services. Its wholly-owned subsidiaries include L&T Finance Ltd, L&T Housing Finance Ltd, L&T Infrastructure Finance Company Ltd, L&T Investment Management Ltd, etc. Its market capitalization is Rs 18,240 crore.

The lending business comprises of Rural Finance (Farm Equipment Finance, Two-Wheeler Finance, Micro Loans and Consumer Loans), Housing Finance (Home Loans, Loan against Property and Real Estate) and Infrastructure Finance.

Disclaimers

The stock has been picked from the brokerage report of LKP Securities Ltd. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.