L &T Finance Holdings (LNTFH) Q3FY13 Results Review

Larsen & Tubro Finance Holdings (LNTFH), today, announced its Dec 2012 quarter. On a consolidated basis, income from operations increased by 27% to Rs 983 crore while Net Profit grew at Rs 294.62 crore against Rs 93.61 crore in a similar period last year. This was largely after exceptional item of sale of investment in federal bank limited. On a normal basis, it reported a Net Profit growth of 27% to Rs 119 crore on a YoY basis. The stock, today, closed marginally higher by 0.65% to Rs 85.50 per share. The following table shows the company’s performance for the Dec 2012 quarter: 

LNTFH faced headwinds when it came to asset quality. Gross and Net NPA increased substantially by 19 and 31 basis points to 2.39% and 1.56% respectively, which is not a very good sign.  As on Dec 31, 2012, the advances of the company grew by a commendable level of 30.77% to Rs 31230 crore.

Further, there were three major acquisitions during the quarter. The company completed the acquisition of Indo-Pacific Housing Finance Company, which has assets worth around Rs 195.3 crore, helping LNTFH to synergise and build housing finance portfolio. Another acquisition of Fidelity’s Indian mutual fund business resulted in an aggregate of around Rs 12000 crore of assets. Lastly, it acquired Family Credit (FCL), which is into two-wheeler and auto financing, having a loan book of Rs 1339 crore. 

We believe that all of this would help the company in the long run and its impact would be seen in the next couple of quarterly results.

In the press release, the management states that it expects improved margins based on the expectations of a stable or improving interest rate environment. Overall we believe that the company posted a good set of numbers. 

The company’s Dec quarter EPS also stood at a good position of 1.71 per share against 0.55 in the similar period last year. At the current market price, the stock is trading at a PE of 21x of FY13E EPS of Rs 4 per share which we believe is fairly valued.

The company is also one of the most probable candidates for the banking license which could again move the stock into a new orbit. We thus believe that one could invest in the scrip in a staggering manner keeping in mind long term horizon to garner better returns.