L&T Finance

Date 24th June, 2015

CMP Rs 63
Target Price Rs 80.50, Upside +28%
General Info
FV
Mkt Cap
BV
P/BV
EPS (TTM)
Div Yield

Rs 10
Rs 10,840cr
Rs 34
1.5
Rs 5
1.20%

Dividend History

Jul-15
Jul-14
Jul-13

Dividend/share
Rs 0.80
Rs 0.75
Rs 0.75

Shareholding Pattern

Others,
21.06%
DIIs, 5.99%
FIIs, 0%
Promoters,
72.95%

Investment Rational
1. Monsoon Effect: 25% of the Retail Loan
portfolio is in Rural Area. Improving
Monsoon is positive for the company.
2. Banking License: Banking license will
enable the company raise low- cost
deposits, while on lending side, it already
has a well-diversified loan portfolio,
significant part of which is in compliance
with the priority sector lending
requirements.
3. Improving Economic Condition: Improved
growth outlook for the infrastructure
finance business. Governments recent
thrust on renewable energy is already
helping the company report a strong
growth in its infrastructure portfolio.
4. Monetary Easing: Easing Inflationary
pressure could see another rate cut in
CY15, this improve margins and boost
growth.
5. Loan Book Growth: Loan book to grow at
25% CAGR over FY15-17E. HFC, Tractor,
Two-wheeler and Microfinance in retail
business and operating projects in Roads
and Renewable energy sectors in the
wholesale segment will lead the growth.
6. Subsidiary: RoE of HFC business to
improve to 16% by FY17E.Investment
management business has already
achieved break-even and will begin
contributing to consolidated RoE. L&T
retail lending business to report RoE
expansion of 2-3% over FY15-17E.

L&T Finance
Date 24th June, 2015

Company Background
L&T Finance was incorporated in 1994. L&T Finance Holding is holding company registered with RBI as
an NBFC. Larsen & Tourbo is promoter of the company. It is headquartered in Mumbai. And has
presence in 23 states in India.
Operation: Operations are managed out of three locations Mumbai, Chennai and Hyderabad. These
are broadly structured into three units Loan acquisition, loan servicing and business process.
Business Verticals:
1. Retail Finance
2. Wholesale Finance
3. Asset Management
4. Insurance Distribution
Retail Finance: Retail Finance consists of retail, mid corporate and housing finance business and is
carried out through wholly owned subsidiaries, L&T Finance Ltd, Family Credit Ltd and L&T Housing
Finance Ltd. Retail Finance Total Loan Book as on FY15 is Rs 25,000 Crore.
Product Portfolio under Retail Finance:
Consumer & Auto Micro and Small
Loan
Enterprises
Farm Equipments Construction
Equipments
Personal Vehicles Medium & HCV

Mid & Large

Corporation
Loan & Leases

Housing Finance

Micro Finance

Home Loans

LAS

LAP

Joint Liability
Loans
Micro Individual
Loan

Small & LCV

Supply Chain
Finance

Construction
Funding

Warehouse
Receipt Finance

L&T Finance
Direct Consumer Exposure of Total Retail
Portfolio

Break up of B2C Retail Loan Portfolio

90%

30%

80%

Rural

70%

20%

Vehicle Finance

10%

Housing Finance

60%
50%

B2B

40%

B2C

Micro Finance
0%

30%
20%
10%
0%

FY10

FY11

FY12

FY13

FY14

FY15

B2B

76%

81%

78%

67%

55%

43%

B2C

24%

19%

22%

33%

45%

57%

FY11 FY12 FY13 FY14 FY15

Rural

16% 19% 19% 23% 25%

Vehicle
Finance

1%

11% 12% 11%

Housing
Finance

0%

2%

Retail Loan Portfolio:

Fig (In Crore)

Rural Product
Personal Vehicle
Finance
Micro Finance
Housing Finance
Supply Chain Finance
Mid Market Finance
CV Finance
Total Retail

Loan Book
% of Total
FY15
Retail
Approx Yield
6286 cr
25% 16-20%

2847 cr
916 cr
4258 cr
1754 cr
6928 cr
2004 cr
24993 cr

11%
3.6%
17%
7%
27.7%
8%

Car - 12-15%,
Two Wheelers
18-20%
20-24%
11-14%
12-15%
12-16%
12-16%

9%

17%

L&T Finance
Outlook of the Retail Portfolio:
Product
Rural Product Finance

Personal Vehicle Finance

Micro Finance
Housing Finance
Supply Chain
Mid Market Finance
CV Finance

Outlook
Monsoon is advancing ahead of schedule and Good Monsoon will help in
strengthening the Rural Loan portfolio. Tractor sales could increase is
positive for the company.
Passenger Vehicles sales is expected to pick up in FY16. 8-10% growth
expected.
Strong demand in Microfinance.
Mortgage Industry penetration at 9% of Indias GDP, expected to double in
next 3 years: ICRA
Increased focus on manufacturing sector is expected to increase lending
to the sector.
Capex will take another 2 3 Quarters for pick up. This segment to show
muted growth.
CV demand to increase going forward as interest rate coming down.

Wholesale Finance
The wholesale finance business comprises of Infrastructure Financing and non- Infra wholesale Financing.
Infra Financing is done through L&T Infra Finance Company Ltd and L&T Debt Fund Ltd. Non Infra
Financing is done through L&T Fincorp Ltd.

Infrastructure Loan Portfolio Composition

Operational Asset Proportion Increasing

60%
50%

Others
22%

Telecom
13%
Transportati
on
20%

40%

Thermal
15%

30%
20%

Renew able
Pow er
17%
Pow er Corp
13%

10%
0%

FY11

FY12

FY13

FY14

FY15

Operational
Projects

21%

35%

31%

37%

47%

Under Construction

27%

29%

29%

26%

28%

Corporate

48%

32%

37%

32%

22%

Equity Investment

5%

4%

2%

5%

3%

L&T Finance
Wholesale Loan Portfolio:
Fig (Rs Crore)

Thermal Power
Renewable Power
Power Corp + T&D
Roads
Telecom
Others
Total

Loan Book
% Total Infra
FY15
Loan
2960 cr
13%
5931 cr
26%
2161 cr
9.7%
4736 cr
21.2%
1427 cr
6.4%
5022 cr
22.5%
22237cr

Approx Yield
13-14%
13-14%
13-14%
13-14%
13-14%
13-14%

Outlook of Wholesale Portfolio:

LT Infra Portfolio
Renewable Energy

Thermal Power

Roads

Others

Outlook
Government increasing focus on renewable energy to benefit the
company. Financing of renewable energy sector expected to see
increased participation from Banks.
Resolution of domestic gas availability and pricing required to restart stalled project. Also increased Coal production by CIL is
positive.
Increased order flow from NHAI under EPC model
expected.
Resolution of issues in stalled projects and
commencement of payment flows from NHAI key
expectation.

Refinance opportunity expected in PPP projects.

EPC sector revival continues to lag expectation.
Limited growth in infra allied manufacturing.

L&T Finance
Asset Management
LTFH entered into asset management space with acquisition of DBS Cholamandalam AMC in 2010. It later
acquired Fidelitys Mutual Fund in 2012. The average AUM grew at 50% in last 2 years. Currently AUM
stands at Rs 22500 cr. L&T MF market share in the overall AUM of MF industry stands at 1.9%.
LTFH Asset management business has achieved break even in Q414 and it reported a PAT of Rs 5.3 cr in
FY15.
Mutual Fund Composition

Trend In AUM Growth

25000
20000

FMP, 12%
Other Fixed
Income,
12%

15000

Equity,
39%

10000
5000

Cash/
Short Term,
37%

0
Series1

Financials
Asset Quality Improving

FY12

FY13

FY14

FY15

4000

4000

10000

19000

22500

Net worth Composition invested across

Business

3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%

FY11

FY12

FY13

FY14

FY15

GNPA(%)

2.39%

2.03%

3.18%

2.25%

NPA(%)

1.56%

1.26%

2.29%

1.26%

L&T Finance
Quarterly - Gross Segmental Revenue
Fig (In Crore)
Q4FY15 Q4FY14 % Chg
Retail &
Mid Market
911
847
7%
Wholesale
669
517
29%
Investment
42.5
27
57%
Others
199.3
21.5
826%
Total
1821.8
1412.5
28%

Yearly - Gross Segmental Revenue

Fig (In Crore)
FY15
FY14
Retail & Mid
Market
3628 3000
Wholesale
2394 1944
Investment
339 94.8
Others
334
286
Total
6695 5325

Quarterly - Segmental PBT

Fig (In Crore)
Q4FY15 Q4FY14 % Chg
Retail & Mid
Market
158
108.6
45%
Wholesale
99.2
148.2
-33%
Investment
4.98
1.9
162%
Others
-1.43
-6.7
-78%
Total
260.75
252
3.4%

Yearly - Segmental PBT

Fig (In Crore)
FY15
FY14
% Chg
Retail & Mid
Market
594
409
45%
Wholesale
468
475
-1%
Investment
11.2
-0.21 5433%
Others
100
-59
269%
Total
1173.2 824.79
42%

EPS Trend

% Chg
21%
23%
257%
16%
25%

Peer Group Comparison

L&T Fin
M&M Fin
Shriram Transport

P/E
P/BV
12.5 1.85
19
2.7
18
2.2

Financials Yearly

Total Income
Expenses
Profit from
Operation before
Other Income,
Interest and
Exceptional Items
Other Income
Profit from
Operation
Ordinary activity
before Interest
and Exceptional
Items
Finance Cost
PBT
Exceptional Items
PBT After
Exceptional Items
Tax
PAT

FY15
FY14
FY13
FY11
6196
5056
3956
2988
-1738
-1338
-903
-620

4458
141

3718
181

3053
45.7

2368
26.4

4599
-3568
1031
144

3899
-3073
826
0

3098.7
-2332
766.7
212

2394.4
-1702
692.4
0

1175
-324
851

826
-230
596

978.7
-259
719.7

692.4
-229
463.4

Total Income grew at CAGR

of 27%.
PBT grew at CAGR of 14%.
PAT moved up at CAGR of
22%.

Valuation and Outlook

We expect PAT to grow at normalize rate of 13-15% over next 2 years. FY16E EPS would be Rs 5.75 and
FY17E EPS would be Rs 6.6. Stock is available at 10.9 x to FY16E EPS and 9.5x to FY17E EPS. Infra and
Housing Finance companies are trading at average P/E multiples of 18-20.
Even if we conservatively value the company at 14X to FY16E EPS, The Fair Value comes at Rs 80.50
Stock has underperformed the market and has been in consolidation mode for last 1 year and is in range.
Upside move could be seen.
Businesses are picking up and green shoots could be seen. Company is able to improve the asset quality.
In 2-3 Quarter CV and Retail Loan segment is expected to do pick up. Declining interest rate is positive for
the company.

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