Buy This Mid Cap L&T Group Stock For 30% Returns As Suggested By Emkay Global

L&T Finance Holdings (LTFH) reported Q2FY23 PAT of Rs4.1bn. Excluding income from the discontinued business, PAT was 2% above our estimates. Disbursements increased 5.6% QoQ/50.6% YoY, driven by micro finance and consumer loans. AUM grew 2.3% QoQ/3.6% YoY.

Emkay Global has given a "buy" call to L&T Finance Holdings Limited for 30% potential upside from its current level in 12 months with a target price of Rs 100 per share. This mid-cap L&T Group company with a market capitalisation of Rs 19,771 crore.

Stock Outlook & Returns

The stock's current market price on NSE is Rs 80.20 per share, trading 1.29% down its previous close. Its 52-week low level is Rs. 58.50 recorded on March 7, 2022, and its 52-week high is Rs. 92.20 recorded on April 22, 2022, respectively.

In a week, the stock surged, giving positive returns of 0.44%. The stock surged 9.91% in a month, and 10.42% in three months, respectively. However, the stock over a year has given 1.66%, in 3 years 10.78% and in 5 years 59.77% negative returns, respectively.

 

Earnings reflect normalization of credit costs going ahead

L&T Finance Holdings (LTFH) reported Q2FY23 PAT of Rs4.1bn. Excluding income from the discontinued business, PAT was 2% above our estimates. Disbursements increased 5.6% QoQ/50.6% YoY, driven by micro finance and consumer loans. AUM grew 2.3% QoQ/3.6% YoY. With focus on retailisation increasing, the share of retail stood at 58% of AUM (Q2FY22: 47%). NIMs increased 44bps QoQ to 7.4%, reflecting the impact of the higher-yielding retail loans, while CoFs saw a modest rise. Opex remained elevated during the quarter, on account of higher employee-benefit expenses and continued investment in technology and branches. Cost-to-income ratio stood at 37.8% (Q1: 35.8%). As a result, pre-provision operating profit came in at Rs11.3bn, in line with our estimates.

Of the estimated retail unsecured OTR pool of ~Rs11.2bn, Rs4.2bn moved into GS3 during Q2. Against this, the management utilized Rs3.5bn of macro-prudential provisions to fully provide for the loans. The remaining OTR book is largely for home loans, of ~Rs9bn, of which ~Rs6.5bn will come out of restructuring in the next fiscal. Taking into account the write-off on unsecured retail restructured assets and other standard assets, GS3 and NS3 marginally improved to 4.02% and 1.85%, respectively. "P&L credit costs have normalized to a run-rate of ~Rs5.8bn per quarter. With the approval for sale of LTIM now received from SEBI, the transaction is expected to be completed in Q3FY23; we expect the resultant gain of ~Rs23bn to be added to the provision overlay for RE assets," the brokerage said.

 

Valuation & Risks

"We retain our BUY rating with unchanged Sep-23E Target Price of Rs100, valuing the lending business based on the 'excess return on equity' method. Our TP implies Sep-24E price/BVPS of 1.0x," the brokerage has said.

According to the brokerage, the key downside risks would be additional provision cover on its real-estate finance portfolio; weakness in the rural household balance sheets resulting in higher NPAs in the rural portfolio.

 

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective 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 making any investment decision.