L&T Finance Holdings - A long term bet

L&T Finance Holdings’ financial performance for HIFY12

L&T Finance Holdings, which got listed in August 2011, recently announced its financial performance for the half year ended 30th September, 2011. The company’s income from operations increased by 42.58% to Rs 1335.53 cr. Its Net Profits increased marginally by 8% to Rs 220 core for the 6 months ended September 2011. Loans and advances saw a growth of 53.5% to Rs 21395.7 cr on a YoY basis. Yesterday, the scrip closed up by 1.67% at Rs 51.60.

As compared to FY11, there has been a sharp rise in both Gross and Net NPAs, which increased by 97 basis points to 2.04% and 58 basis points to 1.24% respectively. The reason for this is that the company has seen its NPAs from microfinance lending increase from nil at the start of the fiscal to Rs 106.26 cr in absolute terms as on September 30, 2011.

For the first half of 2011, microfinance lending for the company stood at approximately Rs 370 cr, of which Rs 193.80 cr, is outstanding from Andhra Pradesh, while the remaining is from other states. L&T Finance Holdings has made an additional provision of Rs 25 cr in Q2 FY12, taking the cumulative provisions to Rs 84.67 cr against the principal outstanding of Rs 193.80 cr in Andhra Pradesh.

The company’s management believes that it will able to control the NPAs from here on. With interest rates almost reaching a peak, the pressure on the company will be eased going forward.

On the banking license front, the management has indicated its willingness to enter the banking sector, but has said that this is currently in the planning stage.

The company posted a decent set of HI FY12 numbers. It is currently trading at Rs 52, which is the same as its IPO issue price. We believe that L&T Finance Holdings has a strong business portfolio, and with a strong management it is a surely a long term bet to garner good returns over a longer period of time.   

From the above table, we can see that L&T Finance is facing more trouble on the NPAs side. Its Net NPAs have increased by 41 basis points to 1.64% on a YoY basis. Its CAR has almost remained stable as compared to last year. In comparison, the Net NPAs of L&T Infrastructure have improved by 28 basis points to 0.73% on a YoY basis. However, it witnessed a dip of 225 basis points in the CAR to 15.78%.