L&T Finance Holdings Acquires Indo Pacific Housing

Vidrum / 13 Mar 2012

L&T Finance Holdings (LTFH) has made an announcement that it has entered into the housing finance business with the acquisition of Indo Pacific Housing Finance (IPHF).
L&T Finance Holdings (LTFH) has made an announcement that it has entered into the housing finance business with the acquisition of Indo Pacific Housing Finance (IPHF). IPHF was formerly known as AIG Home Finance and had entered the Indian retail finance market in 2007. The LTFH stock, in the wake of this declaration, moved northwards and is trading up by 3.46 per cent at Rs 49.40. 

As per the press release, the acquisition will synergize with LTFH’s existing financial services business by deepening and widening its portfolio. The management of the company stated that this has provided them with an entry route to the housing finance business with a fully operational platform and an experienced team. This expertise, coupled with LTFH’s brand and presences across India, will further provide scope for quick growth of both the entities.

As per its last audited result, IPHF has a loan book size of Rs 193.5 crore. The company has 34 branches which are primarily located in the southern and western regions. This includes metro cities such as Ahmedabad, Bangalore, Coimbatore, Cochin and Pune. 

We believe that growth in the housing finance sector will be good going ahead. The demand for housing in Tier 2 and Tier 3 cities is much higher than in the Tier 1 cities. Due to the high interest rate regime many of the potential buyers would have postponed their plans but now with the interest rate expected to undergo a reversal, the market may open up once again. Also, loans against housing are usually collateralized and hence any default in making repayment can be easily recovered by selling the house.      

LTFH is registered with the RBI as an NBFC. It is a financial company which offers a diverse range of products and services across the corporate, retail and infrastructure financing sectors. It also offers mutual funds and investment management services. 

In August 2011, LTFH had tapped the market to raise funds worth Rs 1,575 crore through the IPO route. The shares were allotted at Rs 52 per share, currently trading at a discount of 5 per cent. At the time of our IPO analysis we had clearly recommended investing in the company with a long-term horizon and we continue to believe that the company will do well in time to come. On the financial front, in the December quarter of 2011 the topline of the company increased by 40 per cent to Rs 772 crore while its bottomline witnessed a marginal growth of 3 per cent to Rs 93 crore. 

Overall, the acquisition will take time some time to show good performance. Also, AIG Housing Finance has, of late, not seen good growth in its bottomline. According to the one of the credit rating agency reports, AIG has posted losses in the past too and therefore will not add any immediate value to the acquired firm. But it seems that for LTFH this is a step ahead to expand its lending activities.   

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