L& T Finance Holdings – Healthy Asset Growth

L&T Finance Holdings which is one of the leading NBFCs in India announced the June 2013 quarter results. Financial performance of the company has been strong as it posted Profit After Tax (PAT) of Rs 144.9 crore posting a growth of over 20 per cent on Y-o-Y basis. Rather for the lending business the consolidated PAT stood at Rs 152.80 crore (Showing an increase of 20.20 % on Y-o-Y basis.

On the operational front the company witnessed a healthy growth in asset base where the loans and advances as on 30th June 2013 stood at Rs 34337.20 Crore (showing an increase of 31 per cent on Y-o-Y basis and 3.10 per cent on sequential basis. On the asset quality front, the management has stated that “The uncertain macro environment resulted in an increase in Gross NPA, contributed mainly by the corporate, infrastructure and SME segments. Gross NPAs stood at 2.54% of loan assets as on 30th June 2013 as compared to 2.03% as on 31st Mar 2013. Net NPAs stood at 1.67% of loan assets as on 30th June 2013 as compared to 1.26% as on 31st Mar 2013.

On the assets front the disbursement trends continue to be similar to the last quarter with construction equipment and commercial vehicle segments witnessing de-growth, while the Rural Products Finance and infrastructure financing for the Transportation sector showed healthy growth. The management continues to follow a cautious approach to credit selection and consequently disbursements in corporate, auto and construction equipment segments have been impacted.

Retail and corporate finance business witnessed a growth of 25.60 % in terms of disbursements. Even the infrastructure finance business witnessed a strong growth as the disbursement for June 2012 quarter increased to Rs 1348 crore as against Rs 580 crore in June 2012.

On the profitability front, Retail and corporate loans witnessed highest Growth as the PAT for June 2013 quarter stood at Rs 73.70 crore as against Rs 49.80 crore in June 2013. Even the infrastructure finance segment sustained its profits at Rs 76.70 Crore as against Rs 74.4 crore respectively.

Gross NPA stood at Rs. 846.4 Cr. or 2.54% as a percentage of gross advances as on 30th June 2013 as against Rs. 659.6 Cr. (2.03% as on 31st March 2013). The increase in Gross NPA has been contributed primarily by corporate loans in infrastructure and SME sectors, as a result of stress in the economic environment. The GNPA includes Rs. 94.2 Cr (net of write off) in FamilyCredit Limited (FCL), mainly contributed by legacy portfolio (fully provided for).

Outlook

The management has stated that, the macroeconomic environment continues to remain uncertain, with limited visibility on signs of improvement in the business environment. The recent volatility in the exchange rates has increased the challenges for policy makers in an economy witnessing a slowdown. The various policy initiatives being undertaken by the government to revive the capex cycle and investments are expected to yield positive results in the medium to long term. Early indications of good monsoons are expected to keep the rural economy buoyant, in turn contributing to growth in disbursements and book.

On the margins front the management suggested that, margins are expected to be stable or witness a marginal improvement due to an expected improvement in the interest environment in H2FY14. Though we continue to be cautious in credit selection and asset monitoring, concerns on asset quality remain. Improvement in the overall business environment is expected to enable stabilization of asset quality.

The financial performance of the company has been in-line with the street estimates. We recommend the investors to accumulate the stock at current levels with a perspective of next one year.