Diversified loan book; growth has been strong in the recent past
L&TFH
through its subsidiaries L&T Finance and L&T Infra Finance
offers a broad spectrum of financial products and services. The
consolidated loan book of the company could be broken into
infrastructure finance (40%), retail finance (37%), corporate finance
(20%) and others (3%). Over the past two years, the consolidated loan
book has witnessed 57% CAGR. More importantly, the book has become more
diversified with the share of retail and corporate finance segments
combined having declined from 69% in FY09 to 58% in FY11.
Wide pan-India presence; exploring opportunities to leverage it
As
of May 2011, L&TFH had 837 points-of-presence spread across 23
states thereby enabling the company to cater to a large customer base
(especially in rural and semi-urban areas). Company further plans to
strengthen its reach through expansion in areas offering significant
opportunities to increase revenue and giving competitive advantage. Such
an extensive distribution network would be leveraged by the company to
provide new products and services and also foray into new business
segments. With an edge over competition in terms of reach, robust loan
growth momentum is likely to continue.
Sanguine asset quality; however, some slippages may crop up
Across
segments, L&TFH’s asset quality has improved substantially in FY11
despite the robust growth registered over the past few years. For
L&T Finance (comprising retail and corporate finance business), the
Gross and Net NPAs stood at 1.4% and 0.8% respectively at end-FY11. In
L&T Infra Finance, the Gross and Net NPAs stood at 0.7% and 0.5%
respectively at end-FY11. More importantly, about 71%, 91% and 90% of
the Corporate, Retail and Infra segment advances are secured thereby
providing high level of comfort. However, given the current challenging
credit environment, one could expect some slippage in NPL ratios.
Robust profitability reflected in high return ratios; ‘Subscribe’
RoA
and RoE have improved materially in the past two years for L&T
Finance driven by significant expansion in NIM and improvement in asset
quality. End-FY11, RoA of the company stood at 2.5, remarkable in the
light of the loan book mix. RoE was at 16% with the leverage at 5.3x.
L&T Infra Finance’s RoA has been stable at 3.5% in the past two
years. This is better than IDFC (like-to-like competitor) which has been
earning around 3%. Further, RoE is impressive at 18%. With valuation
reasonable at mean 2.5x P/BV (pre-IPO) we recommend subscribing to the
IPO.
