This L&T Stock Reported Highest Retail Disbursement In Q1FY23, Brokerage Suggests Buy For 22% Gains

Prabhudas Lilladher, a leading brokerage firm, in its brokerage report on L&T Finance Holdings Ltd, has recommended 'buying' the stocks of the company for a target price of Rs 88 apiece. The brokerage upgraded its previous rating from 'Hold' to 'Buy'. The company reported the highest ever quarterly retail disbursement of Rs 89.3bn in Q1FY23. L&T Finance Holdings is a Midcap Non-Banking Finance Company (NBFC), a Larsen & Toubro Group company, with a market capitalization of Rs 17,938 crore.

Stock Outlook & Returns

L&T Finance Holdings' share price on 26th July 2022 closed at Rs 72.45 apiece on BSE without any change from its previous close. The stock is trading Rs 23.55 apiece below its 52 week high of Rs 96 apiece and Rs 13.95 apiece above its 52 week low of Rs 58.50 apiece, respectively.

The stock's previous close was also Rs 72.45 apiece. In the past 1 week, it gained 0.07%, and in the past 1 month, it gained 3.87%, respectively. The stock in the past 1 year has fallen 17.39%, whereas in the past 3 & 5 years it has fallen 30.17% and 55.04%, respectively.

The stock may rise by up to 224% based on the estimated Target Price of Rs 88/share and the Current Market Price of the stock.

Sequential growth in retail loans; home loans growth surprises positively

Loan book at Rs 881bn de-grew 3%QoQ and 46%YoY, on account of 2% QoQ sequential de-growth in wholesale book. Rural book saw a strong growth of 6% QoQ, supported by 8% QoQ growth in micro loans and 32% QoQ growth in consumer loans. Company achieved highest ever quarterly retail disbursement (Rs 89 bn) up 10% QoQ, retail business now forms 54% of portfolio. 6.7% QoQ growth achieved in home loans is a strong positive. Company maintained market share in Farm & 2W and achieved higher disbursements YoY. ROA marginally declined to 1.02% in Q1FY23 from 1.33% in Q4FY22.

Asset Quality stable

Q1FY23 Gross Stage 3 assets came in at 4.08% (higher than our estimates of 3.7%) as compared to 4.08% in Q4Y22 and 6.67% of Q1FY22. OTR book has gone down from Rs 30.4 bn in Q4FY22 to Rs 20.1 bn in Q1FY23. This reduction of Rs 10.2 bn includes 1) Rs 5.4 bn which has been closed, 2) Rs 2.0 bn Written off and 3) Rs 2.7 bn rolled over to GS3. Additional provisioning will be taken in Q2FY23 for micro loan portion of the OTR book and would need monitoring if the amount is taken from the Rs14bn management overlay or is part of credit cost.

Brokerage recommends buy for a target price of Rs 88 apiece

Brokerage firm Prabhudas Lilladher said, "We upgrade L&T Finance Holdings to 'BUY' from HOLD in anticipation of company continuing to increase retail portion in their overall book to at least 60% by end of FY23 and further reduce OTR book other than the retail home loan portion of Rs6.4bn by Q2FY23. L&T Finance Holdings' Q1FY23 earnings (PAT at Rs2.6bn) stood above our estimates (PLe: Rs3.0bn) on account of higher provisions. Overall loans at Rs 880.7bn de-grew -0.3% QoQ and declined -0.46% YoY, lower than our estimates of Rs 919bn. Rural loans saw strong growth of 6% QoQ/23% YoY (is a big positive in the result), whereas wholesale business saw a 2% QoQ sequential de-growth thereby keeping AUM flat. Housing Loans (Home Loans+LAP) witnessed strong growth of 4%/6% on QoQ/YoY basis after a soft Q4FY22, thanks to a strong 6.7% QoQ growth in home loans."

The brokerage added, "We believe that L&T Finance Holdings has walked the talk in terms of retail loan growth, but will have to sustain this growth momentum in FY23 and also grow its overall AUM. We reckon that L&T Finance Holdings 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 upgrade the rating to 'BUY' and maintain our Target Price at Rs 88 valuing the core business at 1x Sep'24E PABV."

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. 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 taking any investment decision.