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L&T Finance Holding
L&T Finance Holding
L&T Finance Holding
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Issue Open: July 27, 2011 Issue Close: July 29, 2011
Issue Details
Face Value: `10 Present Eq. Paid-up Capital: `1,477cr Offer Size#: 21.1cr 24.4cr Shares Post Eq. Paid-up Capital#: ` 1,688 1,721cr Issue size (amount): `1,245cr Price Band: `51-59 Post-issue implied mkt cap*: ` 8,778 - 9,959r Promoters holding Pre-Issue: 95.9% Promoters holding Post-Issue*: 82.3% - 83.9% Note: # At the upper and lower price bands, respectively, * At the lower and upper price bands, respectively
Book Building
QIBs Non-Institutional Retail Up to 50% At least 15% At least 35%
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
Source: RHP, Angel Research. Note *: Valuations at the lower price band and at pre issue earnings and adjusted book value
Company background
L&TFH offers a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors, as well as mutual fund products and investment management services, through their direct and indirect whollyowned subsidiaries. L&T Finances wholly owned subsidiary L&T Infrastructure Finance Company Limited (L&T Infra), conducts infrastructure finance business which provides financial products and services to customers engaged in infrastructure development and construction and is registered with the RBI as an NBFC-ND-SI and an IFC. L&T Finance Limited (L&T Finance), another wholly owned subsidiary, conducts retail finance business and corporate finance business and is registered with the RBI as an NBFC-ND-SI and an AFC.
Investment arguments
Highly diversified business model with pan India presence
L&TFHs well diversified loan book ranging from small ticket microfinance to big ticket infra loans, provides the company an opportunity to tap into various under penetrated segments and address a broader range of growth opportunities across cycles. Compared to specialised lending NBFCs, L&TFHs risk is much better spread out into the various segments it operates, which reduces the risks associated with any particular segment or customer concentration. The strong parentage and brand equity of L&T has facilitated L&TFHs entry into various segments, allowed it to gain operational skills in a short frame of time and is likely to be an advantage with regards to attracting professional talent. Also, in terms of reach, the L&T finance group has presence pan India (23 states, 837 Points of presence).
Power 27.7 28.7 Roads Telecommunications.. 6.2 L&T finance (Corporate) 6.4 13.8 17.3 Oil and GaS Urban Infrastructure Other
As of FY2011, the L&T finances loan book comprised 58.6% of the L&TFHs loan portfolio. The retail segment of L&T finance, which is mostly into construction equipment finance, transport finance and rural based lending, comprises 37.9% of the overall holding companys loan portfolio (64.8% of L&T Finances loan book). The corporate segment which provides financial products and services to corporate customers comprises 20.6% of the overall holding companys loan portfolio (35.2% of L&T Finances loan book). L&T Infra offers loans to customers engaged in infrastructure development and construction. Conferred upon an IFC status by the RBI, the companys operations majorly comprises of lending to power and road projects. The exposure to power sector is ~ 2,060cr (11.9% of the holding companys loan book) with no exposure to any state electricity board.
Retail Finance Group Construction equipment finance Transportation equipment finance Rural products finance Microfinance Distribution of 3rd party fin. products
Infra Group Power Roads Telecommunications Oil and GaS Urban Infrastructure
Competitors Shriram Transport, SKS Microfinance, Magma Fincorp, M&M Fin Services
56.6
35.9
35.2
24.4
50.6
41.7
35.4
31.7
17.2
14.5
0.0
LICHF
IDFC
PFC
HDFC
Shriram Trans.
LICHF
IDFC
HDFC
PFC
Source: RHP, Angel Research, *note; FY10-11 growth for L&T Fin Holding
L&TFH has seen robust growth in the last 2 years, while maintaining its asset quality. As of FY2011 the gross NPA ratios for L&T finance stood at 1.4% (2.8% in FY2010), while for L&T infra, the gross NPA ratio stood at 0.7% (1.9% in FY2010). The overall funding mix comprises mostly of term loans (63.0% of total borrowings as of FY2011) and debentures (28.6% of total borrowings as of FY2011).
15.3
10.0
24.4
Debentures
FY10
FY11 2.81
63.0
2010
2011
AA+ AA+
Investment risks
Both L&T finance and L&T infra have a wide mix of product offerings where they compete with a host of specialized players with already established asset appraisal skills. The product offerings by L&T finance range from working capital loans in the corporate space to rural based lending in retail space, on the one hand making its portfolio well diversified and shielded from slump in any particular sector i.e. it is a positive from a sectoral risk point-of-view. But on the other hand, a diversified loan offering, however, also implies building asset appraisal skills (PFC in power lending, Shriram transport in vehicle loans) in every segment. It remains to be seen if the company can match the ability of the niche NBFCs in profitably sourcing high-yielding loans, while managing credit risk effectively. At present, based on FY2011 numbers, even at a reasonably high leverage, the companys RoEs were on the lower side compared to peers. Also considering exposure to infra (above 40% of total loans outstanding; Nil to SEBs) and MFI (`460cr exposure, with `200cr being in Andhra Pradesh), NPA and restructuring concerns surfacing in the short-to-medium term cannot be ruled out.
Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. and Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Provision for Taxation - as a % of PBT PAT - YoY Growth (%) FY10 726 NA 23 NA 749 NA 260 NA 489 NA 113 NA 376 NA 134 36 242 NA FY11 1,039 43.1 56 137 1,094 46 372 43 723 48 111 (2) 612 63 213 35 398 65
Balance sheet
Y/E March (` cr) Share Capital Reserve & Surplus Borrowings - Growth (%) Other Liabilities & Provisions Total Liabilities Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets FY10 1,354 672 9,727 56.4 667 12,419 309 10,949 54.2 398 763 12,419 FY11 1,417 1,431 15,916 63.6 928 19,693 732 17,411 59.0 453 1,096 19,693
Ratio Analysis
Year end March Per Share Data (`) EPS ABVPS ( 75% Coverage for NPAs) Profitability ratios (%) NIMs ROA ROE Asset Quality (%) Gross NPAs Net NPAs Valuation Ratios PER (x) P/ABVPS (x) DuPont Analysis (%) NII (-) Prov. Exp. Adj NII Other Inc. Op. Inc. Opex PBT Taxes ROA Leverage ROE 7.1 0.9 6.2 0.2 6.4 2.6 3.9 1.3 2.5 8.3 21.1 6.5 0.7 5.8 0.3 6.1 2.3 3.8 1.3 2.5 6.6 16.3
$
FY2010 1.9 14.1 7.8 2.5 21.1 2.49 1.73 26.5 3.6
FY2011 2.8 19.6 7.1 2.5 16.3 1.10 0.67 18.1 2.6
Note: $ Valuations at the lower price band and pre issue earnings and adjusted book value
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