The brokerage house Motilal Oswal has initiated a buy rating on the shares of L&T Finance Holdings Ltd. L&T Finance Holdings Ltd's shares have been assigned a buy recommendation by brokerage company Motilal Oswal. L&T Finance Holdings (LTFH) is a major Non-Banking Financial Company (NBFC) that offers highly-diversified financial products and services across every corner of the country. The brokerage anticipates the stock to rise 33% from its market price of Rs. 83 to a target price of Rs. 110. The stock was trading at a market price of Rs. 83 at the time of the brokerage's buy call, but it is presently trading at a market price of Rs. 77.10 per share on the NSE.
The brokerage’s take on L&T Finance Holdings Ltd
Motilal Oswal on 24th December 2021 has said in its research report that "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)."
According to Motilal Oswal, "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."
The brokerage has noted in its research report that "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."
Buy L&T Finance Holdings Ltd Says Motilal Oswal
Motilal Oswal has highlighted in its research report that "Divestment of the Asset Management business to HSBC AMC is in line with LTFH's objective of unlocking value from its subsidiaries and strengthening its Balance Sheet for the Lending business. Given its healthy capital adequacy of over 25% and expected proceeds from the sale of the MF business, LTFH is now in a position to aggressively push forward towards its stated long-term goal of retailization of its lending portfolio."
According to the research report "Our recent channel checks suggest that while rural demand was recently impacted because of unseasonal rainfall and delay in farm cash flows, this segment (except 2W) has maintained the run-rate achieved in Sep'21 in 3QFY22 as well. We reiterate our view that LTFH is near the bottom in terms of consolidation of its loan book, with an expected pickup in Infra disbursements and Retail Housing/LAP. Even though we remain watchful of potential slippages in Real Estate Finance in 2HFY22, given the buoyancy in the Real Estate sector, we expect resolutions of such exposures to be relatively quicker."
Motilal Oswal has claimed that "LTFH carries adequate additional provisions (including OTR provisions) of 2.2% of standard loans. These are over and above ECL provisions and should provide the necessary buffer to protect against contingencies in Microloans and the Real Estate segment. We have not made any changes to our estimates (as yet) and maintain our Buy rating on the stock with an unchanged TP of INR110 (1.2x Sep'23E consolidated BVPS)."
The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.