L&T Finance Holdings has better times ahead: Reasons why it is stock pick of the week – The Economic Times

Clipped from: https://economictimes.indiatimes.com/wealth/invest/lt-finance-holdings-has-better-times-ahead-reasons-why-it-is-stock-pick-of-the-week/articleshow/87394999.cms

SynopsisDespite challenges, LTFH was able to achieve highest ever farm and 2-wheeler loan disbursements in the second quarter. LTFH was also able to achieve 99% plus collection efficiency in the micro loan segment during September, making it a favourite of analysts.

L&T Finance Holdings (LTFH) has reported lower than expected numbers for the second quarter of 2021-22. Slippage by one large NCR-based real estate account has resulted in spiking of its credit costs and pulled down its net profit q-o-q. Lower provisioning last year due to moratorium is another reason why its consolidated net profit fell by 10% y-o-y.

However, analysts are getting bullish on this counter and the strong momentum in LTFH’s rural business is the main reason for this. Despite the challenges, LTFH was able to achieve highest ever farm and 2-wheeler loan disbursements in the second quarter. Improvement in its collection efficiency is also remarkable. While the collection efficiency is back to pre-covid levels in most retail loan products, LTFH was able to achieve 99% plus collection efficiency in the micro loan segment during September.

Though asset quality stress remains a sore point for the housing and wholesale lending portfolios, analysts are not much worried because of its reasonable provision coverage and high capital adequacy of 25.2%. The prevailing low interest rates have helped LTFH also to bring down its cost of funds. For instance, LTFH raised more than `5,000 crore below 6% in the second quarter to bring down its quarterly weighted average cost to its lowest ever. The reduction in weighted average cost was 79 bps y-o-y and 11 bps q-o-q.

Analysts’ views

  • Buy: 11
  • Sell: 1
  • Hold: 1
Fundamentals
Relative Performence

With exposure to farm equipment loans (top lender), 2-3 wheeler loans and micro loans (among top 3 lenders), consumer loans, home loans, loan against property, real estate builder loans, infrastructure finance, etc., LTFH is a well diversified NBFC and therefore, is a play on the India credit growth story. Once the covid induced disturbances are over, structural credit growth is expected to return in rural areas. LTFH will also benefit from the cyclical revival in housing sales and an imminent recovery in infra financing.

To reduce the risks from bulk loans, LTFH’s management was trying to increase the components of its loans and the same has started yielding results. For instance, its retail loan portion has grown to 47% in second quarter of 2021-22, compared to 26% in 2015-16 and 41% in second quarter of 2020-12. LTFH’s asset management business is benefitting from the financialisation of savings and was able to increase its AUM to more than Rs 80,000 crore as on September.

Selection Methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.
(Originally published on Nov 01, 2021, 06:30 AM IST)

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