L&T Finance Holdings (LTFH)

Transcription

1 Date : 25 th May, L&T Finance Holdings (LTFH) IPO Proceeds Utilization : At the time of the IPO, the company had proposed to utilize the net proceeds to repay inter corporate deposits issued by the Promoters to L&T Finance Holdings. It also intended to utilize the proceeds for infusion of capital in two of its subsidiaries namely L&T Finance Ltd. and L&T Infrastructure Finance Company Ltd and fund expenditure for general corporate purposes. (Rs. in millions) Estimated amount to be utilized from net proceeds Actual Allocation (Post IPO) Repayment of Inter-Corporate Deposits 3,450 3,450 Infusion of Capital in L&T Finance (Unsecured NCD in the nature of Perpetual Tier I Debt) 5,150 2,000 Infusion of Capital in L&T Infrastructure 4,850 2,750 Infusion of Capital in L&T Fincorp Ltd. (SME focused company which was earlier known as India Infrastructure Developers Ltd.) Infusion of Capital in L&T Unnati Finance (MFI focused company of L&T Finance Holdings) NA 2,000 NA 19.5 General Corporate Expenses NA 1, Issue Expenses NA Total Funds Raised 12,450 12,450 Actual Amount Utilized - 12,006 Amount Unutilized 444 Inter-Corporate Deposits with Subsidiary Companies (net of earnings on interim utilization) Balance with Banks in current account - 29 Post IPO Progress Card : 1) The company has satisfactorily been able to utilize the funds of Rs. 12,450 million raised during the IPO towards the stated objectives. 2) As regards the objective of infusing funds in its subsidiary namely L&T Finance and L&T Infrastructure, the total amount earmarked towards this was Rs. 5,150 million

2 and Rs. 4,850 million. Of this however, the company has infused Rs. 2,000 million and million in L&T Infrastructure and L&T Finance respectively during. 3) Further, LTFH has infused capital in erstwhile India Infrastructure Developers Ltd now known as L&T Fincorp, its wholly owned subsidiary catering to the advancing requirements of SMEs. While there is no mention in the RHP, it appears that LTFH has infused capital in this subsidiary to operationalize the business activities of L&T Fincorp. Consolidated Snapshot of Performance & Analyst s Notes : Total Income from Operations % () (Rs. Millions) % () 8,485 6, ,809 20, Employee Costs Provision for Contingencies Write offs / loss on foreclosure of loans Total Expenditure 1,637 1, ,158 4, PBIDT 6,966 4, ,251 16, Interest Expense 4,727 3, ,072 10, PBT 2,153 1, ,842 6, Tax ,133 8 Profit After Tax , Gross NPA (%)(incl. MFI**) Net NPA (%)(incl. MFI**) ** MFI = Micro Finance Institutions Analyst s Notes : 1) Of the Total Income for and fiscal year ended 12, L&T Finance contributed 59 per cent of the total income of LTFH, while its infrastructure financing arm L&T Infra contributed close to 39 per cent for the period under review. The total income for L&T Finance increased 46 per cent on account of improved traction from rural product financing and corporate loans and leases the key drivers

3 for growth in L&T Finance. While for its infrastructure arm the total income improved due to improved lending to Renewable power projects and other non-infra related projects. The company is engaged in providing finance to healthcare, mining, construction, water and sanitation, industrial parks, SEZs, roads, telecom, thermal power etc. 2) On a consolidated basis for period ended 31 st March,, LTFH registered a growth of 39.8 per cent in the loans and advances to Rs. 2,50,169 million on a basis as against Rs. 1,78,949 million on 31 st March,. Within the above, L& T Infrastructure registered a 45 per cent growth while L&T Finance achieved a growth of 25 per cent during the year. 3) For L&T Finance, the loan book growth was primarily from the corporate segment which contributed about 42 per cent of the loan book. However, lending from rural products business which formed about 20 per cent of the total lending has continued with its growth momentum. The loan book stood at Rs. 1,45,280 million upto 31 st March, which included loans and advances of L&T Fincorp. 4) In the Infrastructure space, the loans and advances grew by 45.9 per cent at Rs. 1,04,907 for fiscal year ended as against. Though the loans and advances have displayed a healthy growth on one hand, on the other the interest costs have significantly increased by 67 per cent to Rs.17,072 million in as against Rs. 10,207 in thereby offsetting growth in the topline. 5) On the operational front, though the yield on loans has improved the impact has been marginal on account of the high costs of funds as is indicated in the table below. This coupled with a higher share of corporate lending has led to pressure on the Net Interest Margins (NIMs) for the period under review. L&T Finance : Yield on Loans 14.4% 13.7% (0.7%) 13.4% 13.2% (0.2%) Cost of Funds 9.3% 8.0% 1.3% 9.4% 7.8% 1.6% Net Interest Margins 6.8% 6.9% (0.1%) 5.6% 6.8% (1.2%) 6) For its Infrastructure Financing arm too, the margins remained squeezed due to a sharp rise in cost of funds.

4 L&T Infrastructure Finance : Yield on Loans 12.8% 12.1% (0.6%) 12.5% 11.5% 1.0% Cost of Funds 8.9% 8.6% 0.3% 9.4% 7.3% 1.6% Net Interest Margins 5.0% 4.8% 1.8% 4.7% 5.1% (0.4%) Though with economic growth decelerating, the interest rates are expected to decline going forward which could provide a breather to overall business operations of LTFH. However, with rising rupee depreciation, causing import bills to rise. The action taken by the RBI on the interest rates front would merit attention. Thus any decline in interest rates to boost domestic economic growth could lead to positive traction in terms of business for LTFH. 7) On the Asset quality side, the Gross NPAs and Net NPAs for LTFH s infra financing arm (L&T Infra) stood at 1.69 per cent and 1.45 per cent for as against 0.67 per cent and 0.53 per cent in. The deterioration in the asset quality at the gross level was on account of stress in cash flows for some of the clients of L&T Infra on account of higher cost of funds for infrastructure projects due to relatively high interest rates in the economy. 8) While, for L&T Finance, the Gross NPAs remains at the same level, despite growth in loans and advances. 9) The company (LTFH) made an additional provision of Rs. 750 million towards MFI portfolio in Andhra Pradesh and is in line with prudent provisioning norms. This has resulted in the total provisioning to be around Rs. 1,346.7 million. An extremely cautious stance taken by the management of LTFH in disbursing loans particularly in Andhra Pradesh (accounts for nearly 45 per cent of the MFI loan portfolio) will aid the company s efforts to improve its asset quality going forward. 10) On a sequential basis, the company reported a Net Profit after Tax of Rs. 1,407.1 million on a consolidated basis for a growth of 45 per cent from Rs. 974 million in the corresponding period last year. However, for the fiscal the profit grew by 16 per cent to Rs. 4,548 in from Rs. 3,912 million during. The growth in was on account of lower credit losses, change in accounting policy towards amortization of goodwill & debenture expenses and overall operating efficiencies. Nevertheless, the growth during remained subdued primarily on

5 account of the Andhra Pradesh MFI portfolio (accounts for nearly 45 per cent of the total MFI Loan book) which caused the bottomline to be much lower than expected. 11) Other developments for the company during the quarter ended were its acquisition of Fidelity Mutual Fund. This acquisition is likely to boost the business of L&T Mutual Fund as it offers synergies in terms of increased Assets Under Management, wider retail client base and the required scale to grow L&T Mutual Fund s asset management business. 12) The company also acquired Indo-Pacific Housing Finance (IPHF) thereby marking its foray into the home financing business. IPHF has a book size of Rs. 1,930 million with no Net NPAs. This offers scope to LTFH to substantially increase its loan book by leveraging its L&T brand. Further, the company has also forayed into the wealth management business thereby diversifying its business operations. Outlook : Expectations are, the RBI could reduce interest during the course of the year due to deceleration witnessed in the economy. This may lead to improvement in the NIMs for LTFH going forward. Moreover, the PAT during came under pressure due to AP MFI loan portfolio, which eventually is expected to improve in the longer term as the management has taken an extremely cautious stance of not undertaking any fresh disbursements. Moreover, the management would continue to focus on improving asset quality across business segments which would augur well in the long term. Further, it expects the rural finance business segment to contribute significantly towards the loan book expansion which in turn could boost the operational performance. However, the same will need to be monitored as failure of the monsoon during the year may significantly impact its topline as well as bottomline performance. Additionally, the pedigree of management, strong support from its parent L&T, emphasis on improving operational efficiency across business segments to optimize costs and maintaining credit quality suggests satisfactory future prospects.