L&T Finance Holding Ltd. (LTFH)

Result/Concall Update October 23, 2012 L&T Finance Holding Ltd. (LTFH) CMP STOCK INFO BSE 533519 NSE L&TFH Bloomberg LTFH IN Reuters LTFH.BO Sector NBFC Face Value (Rs) 10 Equity Capital (Rs Mn) 17148 Mkt Cap (Rs Mn) 92,940 52w H/L (Rs) 56/40 Avg Daily Vol (BSE+NSE) 1,147,128 SHAREHOLDING PATTERN % (as on 30th Sep. 2012) Promoter 82.6 FII 2.6 DII 1.9 Others 12.9 Source: BSE STOCK PERFORMANCE (%) 1m 3m 12m L&TFH 17 19 6 SENSEX 2 9 10 L&TFH v/s SENSEX 150 130 110 90 70 50 : Rs.54 Reco : BUY Target : Rs.63 Source: Capitaline, IndiaNivesh Research 19/10/2011 02/11/2011 16/11/2011 30/11/2011 14/12/2011 28/12/2011 11/01/2012 25/01/2012 08/02/2012 22/02/2012 07/03/2012 21/03/2012 04/04/2012 18/04/2012 02/05/2012 16/05/2012 30/05/2012 13/06/2012 27/06/2012 11/07/2012 25/07/2012 08/08/2012 22/08/2012 05/09/2012 19/09/2012 03/10/2012 17/10/2012 L&TFH Sensex Source: Capitaline, IndiaNivesh Research Daljeet S. Kohli Head of Research Mobile: +91 77383 93371, 99205 94087 Tel: +91 22 66188826 daljeet.kohli@indianivesh.in Yogesh Hotwani Research Analyst Mobile: +91 77383 93411 Tel: +91 22 66188834 yogesh.hotwani@indianivesh.in Impressive growth along with margins improvement, asset quality slightly down.revised target upwards to Rs63 from Rs58... LTFH s loan book growth remains robust at 27% yoy (6% qoq). L&T infra (LTIF) registered a higher loan growth comparatively at 32% yoy (8% qoq) while L&T Finance (LTF) of 24% yoy (4% qoq). Asset quality (cons) witnessed a marginal pressure with increase of 18 / 7 bps qoq in Gross/ Net NPA. LTIF s Gross / Net NPA increased by 26 / 17 bps and LTF by 11 / 10 bps qoq. Excess provisioning of Rs 720 mn in LTIF and Rs 890 mn in LTIF over the regulatory requirement remains the key positive. NIMs (cons) surprised positively with increase of 19 bps qoq to 5.8% mainly due to sequential decline in cost of funds of 30-31 bps each in both financing subsidiaries. NII was ahead of expectation at Rs 3.8 bn, increase of 31% yoy. Net profit was up 13% yoy to Rs 1.4 bn, cautious approach for maintaining excess provisioning continues with increase of 62% yoy (110 bps credit cost vs 83 bps in Q2FY12). Lowering our earnings by 1% each for FY13E and FY14E to factor in the higher provisioning. Result Highlights: Loan growth intact, disbursements picked up: Consolidated loan book grew by 27% yoy (6% qoq) to Rs 276 bn aided by LTF s loan growth of 24% yoy (4% qoq) to Rs 156 bn and LTIF of 32% yoy (8% qoq) to Rs 120 bn. Disbursements (cons) declined by 13% yoy to Rs 49 bn due to sharp decline in LTIF s disbursements (down 30% yoy) to Rs 12.6 bn and LTF of Rs 37 bn. However on sequential basis, disbursements improved by 117% in LTIF and 12% in LTF. 67% of LTIF s loan book is under project loan and of which over 50% are operational. Growth in LTF (retail financing franchise) disbursements was largely attributed to 32% yoy increase in rural product disbursements. Loan Book (Rs mn) % of total Q2FY13 Q2FY12 % YoY Q1FY13 % QoQ L&T Finance Hldg (Cons) 100.0 276620 217418 27.2 261842 5.6 L&T Infra 43.5 120390 91403 31.7 111320 8.1 Ports 4.6 5500 2651 107.5 1350 307.4 Thermal Power 13.1 15830 15721 0.7 16080 1.6 Renewable Power 21.0 25250 15173 66.4 23090 9.4 Roads 12.5 15010 17092 12.2 14810 1.4 Telecom 10.3 12360 12431 0.6 12250 0.9 Oil and Gas 2.0 2390 5027 52.5 2410 0.8 L&T Finance 56.5 156265 126015 24.0 150540 3.8 Construction Equipment 20.2 31500 31950 1.4 31300 0.6 Transportation Equipment 13.5 21060 17240 22.2 20700 1.7 Rural Products 21.5 33600 21610 55.5 30740 9.3 Micro Finance 1.3 1980 3620 45.3 1730 14.5 Corporate loans 27.4 42860 30330 41.3 43200 0.8 Supply Chain Finance 6.4 9930 8810 12.7 8930 11.2 Capital Market products 10.0 15570 12450 25.1 13940 11.7 Disbursements (Rs mn) L&T Finance Hldg (Cons) 100.0 49410 56940 13.2 39590 24.8 L&T Infra 25.5 12610 18040 30.1 5800 117.4 L&T Finance 75.5 37289 38979 4.3 33301 12.0 IndiaNivesh Research IndiaNivesh Securities Private Limited 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800 IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

NIMs improved marginally: NIMs (cons) improved by 18 bps qoq to 5.6% however stable compared to Q2FY13 due to 1) decline cost of funds in both the financing subsidiaries and 2) improvement in yields on assets in LTIF. NIMs of LTIF improved by 24 bps qoq to 5.2% due to sharp decline in cost of funds of 30 bps qoq to 9.7% and improvement in yields by 8 bps qoq to 13.3%. LTF s margins compressed by 24 bps qoq to 5.8% mainly due to decline in yield on funds 44 bps qoq to 14% on back of higher disbursals at the end of September 2012. Further company continues to maintain its Asset liability mix with more dependency on long term borrowing. Borrowings from Mutual/Pension/ Insurance funds have increased substantially during Q2FY13. Yield / Cost / Margin (%) Q2FY13 Q2FY12 bps YoY Q1FY13 bps QoQ L&T Finance Hldg (Cons) NIM 5.6 5.6 4 5.4 18 NIM* 5.6 5.5 9 5.6 3 L&T Infra Yield on Loans 13.3 13.3 5 13.2 8 Cost of Funds 9.7 10.2 58 10.0 30 NIM 5.2 4.8 42 5.0 24 NIM* 5.2 4.8 42 5.1 15 L&T Finance Yield on Loans 14.0 14.0 0 14.5 44 Cost of Funds 9.7 9.4 36 10.0 31 NIM 5.8 6.5 75 6.0 24 NIM* 5.6 0.0 564 5.6 0 LTIF Borrowings Rs mn % of total Q2FY13 Q1FY13 % QoQ Banks 61.0 61556 60723 1.4 Public 16.0 16146 16816 4.0 Mutual/Pen./Ins. Fund 16.0 16146 8408 92.0 Corporates 2.0 2018 2803 28.0 FII/DII 4.0 4036 4671 13.6 Total Borrowings 100.0 100911 93420 8.0 LTF Borrowings Rs mn % of total Q2FY13 Q1FY13 % QoQ Banks 60.0 81416 85741 5.0 Public 11.0 14926 15589 4.3 Mutual/Pen./Ins. Fund 22.0 29853 25982 14.9 Corporates 3.0 4071 2598 56.7 FII/DII 5.0 6785 0 NMF Total Borrowings 100.0 135694 129910 4.5 Asset quality impacted, however excess provisioning remains positive: Asset quality pressure was visible as Gross and Net NPA of was up 18 and 7 bps qoq to 1.8% and 1.2% vs 1.6% and 1.2% in Q1FY13 respectively. In absolute terms, Gross NPA was up by 17% and Net NPA by 12% qoq to Rs 4.8 and Rs 3.3 bn respectively. However excluding MFI NPAs, it was up 20% qoq each in Gross and Net NPAs to Rs 4.2 and Rs 3 bn respectively. LTF asset quality was more impacted comparatively with sequential increase of 26 / 17 bps in Gross / Net NPA to 1.6% / 1% respectively. IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 2

in absolute terms, Gross / Net NPA was up 24% / 25% qoq to Rs 2.4 / 1.5 bn. In Q2FY13, due to macro headwinds, it has made an additional provision of Rs 898 mn higher than regulatory requirement. Further it has provided Rs 151 mn on MFI book taking the outstanding MFI NPAs to Rs ~280 mn. LTIF s asset quality, though affected, but there was slight increase of 10-11 bps in Gross / Net NPA to 1.5% / 1.3%. Further it continues to follow conservative policy on provisioning with standard asset provisioning of 0.25-.5% as compared to 0.25% regulatory requirements. In Q2FY13, due to concerns in infra segment, it has made an additional provision of Rs 720 mn higher than regulatory requirement. Asset Quality Q2FY13 Q2FY12 % YoY Q1FY13 % QoQ L&T Finance Hldg (Cons) Gross NPA 4877 4321 12.9 4164 17.1 Net NPA 3327 2603 27.8 2961 12.4 Gross NPA (excl MFI) 4176 2297 81.8 3467 20.5 Net NPA (excl MFI) 3042 1540 97.5 2530 20.2 Gross NPA (%) 1.81 2.04 23bps 1.63 18bps Net NPA (%) 1.24 1.24 0bps 1.17 7bps L&T Infra Gross NPA 1778 776 129.1 1532 16.1 Net NPA 1546 642 140.8 1328 16.4 Gross NPA (%) 1.54 0.88 66bps 1.43 11bps Net NPA (%) 1.34 0.73 61bps 1.24 10bps L&T Finance Gross NPA 2398 1522 57.6 1935 23.9 Net NPA 1496 898 66.6 1202 24.5 Gross NPA (%) 1.58 1.27 31bps 1.32 26bps Net NPA (%) 0.99 0.75 24bps 0.82 17bps Updates on acquisition: L&T mutual fund has completed Fidelity acquisition and received a SEBI approval for acquisition subject to exit option which will expire on 15 th November 2012. Fidelity AMC s has reported a loss of Rs 208 mn in FY12 as against Rs 624 mn in FY11. LTFH has also completed acquisition of Indo pacific housing finance ltd (IPHF) on 10 th October 2012 for a consideration of Rs 1.1 bn. IPHF has an outstanding loan book of Rs 1.8 bn as on September 2012 which consist of primarily self employed and low income borrowers. LTFH has acquired a wholly owned subsidiary of Societe Generale Consumer Finance, FamilyCredit Ltd at a consideration of Rs ~1.2 bn. FamilyCredit is NBFC primarily having 53 branches in 16 states with focus on two wheeler and auto financing. It has the asset size of Rs ~13 bn with healthy margins and capital adequacy of 13.6% and 16.5% respectively. Valuation: LTFH Q2FY13 results were impressive and ahead of our / street expectation with strong growth in overall loan book driven by sequential increase in disbursals in both financing subsidiaries. NIMs surprised positively with increase of 19 bps as against our expectation of stable margins mainly due to decline in cost of incremental borrowings from Mutual funds and insurance companies. Asset quality witnessed pressure but LTFH s cautious approach of maintaining excess provisioning drives comfort on this front. While we have increased our estimates on Net income by 2% each for FY13E and FY14E on back of expansion in margins, earnings are revised IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 3

downward by 1% each to factor in the excess provisioning with credit cost of 90 bps as against 70 bps in FY12. At CMP of Rs 54, the stock is trading at P/ABV of 1.9x and 1.7x for FY13E and FY14E respectively. We continue to maintain BUY on stock with upward revised target price of Rs 63. Revisit to estimates (mn) FY13E FY14E Old New Old New Net Interest Income 15895 16125 20118 20330 Net Income 16379 16741 20681 21043 Pre Provision Profit 10939 11518 14006 14680 Profit before tax 8696 8512 11195 11053 Net Profit 5951 5874 7780 7726 LTFH (Cons) Rs mn Q2FY13 Q2FY12 % YoY Q1FY13 % QoQ H2FY13 H2FY12 % YoY Interest Income 9245 6995 32.2 9025 2.4 18270 13191 38.5 Interest Expense 5454 4102 33.0 5421 0.6 10875 7809 39.3 Net Interest Income 3791 2893 31.0 3604 5.2 7395 5382 37.4 Other Income 172 330 48.0 115 48.7 287 502 42.8 Net Income 3963 3223 22.9 3719 6.5 7682 5884 30.6 Total Income 9417 7325 28.5 9140 3.0 18557 13693 35.5 Operating Expense 1170 975 19.9 1256 6.9 2426 1873 29.5 Pre Provisioning Profit 2793 2248 24.2 2463 13.4 5256 4011 31.1 Provisions 727 450 61.6 647 12.4 1374 756 81.7 Profit Before Tax 2066 1798 14.9 1816 13.8 3882 3255 19.3 Tax 629 556 13.1 610 3.2 1238 1050 18.0 Net Profit 1437 1242 15.7 1207 19.1 2644 2205 19.9 Loans & Advances 276620 217418 27.2 261842 5.6 Disbursements 49410 56940 13.2 39590 24.8 Net worth 50150 45702 9.7 48720 2.9 Gross NPA 4877 4321 12.9 4164 17.1 Net NPA 3327 2603 27.8 2961 12.4 Gross NPA (excl MFI) 4176 2297 81.8 3467 20.5 Net NPA (excl MFI) 3042 1540 97.5 2530 20.2 Key Ratios (%) bps bps NIM 5.6 5.6 4 5.4 18 NIM* 5.6 5.5 9 5.6 3 Yield on Loans* 13.7 13.4 33 14.0 29 Cost of Funds* 9.5 9.7 17 9.9 39 Credit Cost* 1.1 0.8 22 1.0 6 Gross NPA (%) 1.8 2.0 23 1.6 18 Net NPA (%) 1.2 1.2 0 1.2 7 Sum of the parts valuation (Rs per share) Valuation Methodology ABV/CMP Value Consolidated LTFH 1.9x FY14E Cons ABV 32 60 Federal Bank (4.7%) Market Price 486 2 City Union Bank (4.7%) Market Price 58 1 63 IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 4

LTIF Rs mn Q2FY13 Q2FY12 % YoY Q1FY13 % QoQ H2FY13 H2FY12 % YoY Interest Income 3853 2801 37.6 3645 5.7 7498 5182 44.7 Interest Expense 2347 1790 31.1 2277 3.1 4624 3239 42.8 Net Interest Income 1506 1011 49.0 1368 10.1 2874 1943 47.9 Other Income 104 101 3.0 51 103.9 155 194 20.1 Net Income 1610 1112 44.8 1419 13.5 3029 2137 41.7 Operating Expense 188 102 84.3 175 7.4 363 199 82.4 Pre Provisioning Profit 1422 1010 40.8 1244 14.3 2666 1938 37.6 Provisions 252 38 563.2 187 34.8 439 52 744.2 Profit Before Tax 1170 972 20.4 1057 10.7 2227 1886 18.1 Net Profit 822 686 19.8 745 10.3 1567 1343 16.7 Loans & Advances 120390 91403 31.7 111320 8.1 Disbursement 12610 18040 30.1 5800 117.4 Gross NPA 1778 776 129.1 1532 16.1 Net NPA 1546 642 140.8 1328 16.4 Key Ratios (%) bps bps Yield on Loans 13.3 13.3 5 13.2 8 Cost of Funds 9.7 10.2 58 10.0 30 NIM 5.2 4.8 42 5.0 24 NIM* 5.2 4.8 42 5.1 15 Cost to Income 11.7 9.2 250 12.3 66 Gross NPA 1.5 0.9 66 1.4 11 Net NPA 1.3 0.7 61 1.2 10 Credit Cost* 0.9 0.2 69 0.7 18 ROE 16.9 18.7 178 15.9 97 ROA 2.7 3.2 43 2.6 10 LTF Rs mn Q2FY13 Q2FY12 % YoY Q1FY13 % QoQ H2FY13 H2FY12 % YoY Interest Income 5392 4194 28.6 5380 0.2 10772 8009 34.5 Interest Expense 3230 2408 34.1 3278 1.5 6508 4570 42.4 Net Interest Income 2162 1786 21.1 2102 2.9 4264 3439 24.0 Other Income 117 127 7.9 129 9.3 246 225 9.3 Net Income 2279 1913 19.1 2231 2.2 4510 3664 23.1 Operating Expense 961 789 21.8 993 3.2 1954 1557 25.5 Pre Provisioning Profit 1318 1124 17.3 1238 6.5 2556 2107 21.3 Provisions 475 412 15.3 460 3.3 935 704 32.8 Profit Before Tax 843 712 18.4 778 8.4 1621 1403 15.5 Net Profit 612 472 29.7 527 16.1 1139 952 19.6 Loans & Advances 156265 126015 24.0 150540 3.8 Disbursement 37289 38979 4.3 33301 12.0 Gross NPA 2398 1522 57.6 1935 23.9 Net NPA 1496 898 66.6 1202 24.5 Key Ratios (%) bps bps Yield on Loans 14.0 14.0 0 14.5 44 Cost of Funds 9.7 9.4 36 10.0 31 NIM 5.8 6.5 75 6.0 24 NIM* 5.6 0 564 5.6 0 Cost to Income 42.2 41.2 92 44.5 234 Gross NPA 1.6 1.3 31 1.3 26 Net NPA 1.0 0.8 24 0.8 17 Credit Cost* 1.2 1.3 7 1.2 0 ROE 15.2 17.2 206 13.6 161 ROA 2.1 2.5 41 1.9 19 IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 5

P/ABV Band P/E Band 80 70 60 50 40 2.3x 2.1x 1.9x 1.7x 1.5x 90 80 70 60 50 40 30 22x 20x 18x 16x 14x 30 20 10 20 0 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 L&T Finance Holdings - Consolidated Income Statement (Rs Mn) FY11 FY12 FY13E FY14E Interest Earned 20659 29687 38769 48590 Interest Expended 10227 17448 23147 28914 Net Interest Income 10453 12677 16125 20330 Other Income 535 386 615 713 Net Income 10988 13063 16741 21043 Total Income 21194 30073 39384 49304 Total Expenses 3215 4394 5223 6363 Pre Provision Profit 7773 8669 11518 14680 Provisions 1717 1827 3006 3628 Profit before tax 6056 6842 8512 11053 Tax 2133 2295 2638 3327 Net Profit 3923 4548 5874 7726 Balance Sheet (Rs Mn) FY11 FY12 FY13E FY14E Liabilities Equity 14170 17148 17148 17148 Reserves and Surplus 14742 30391 35403 41962 Net Worth 28912 47539 52550 59110 Borrowings 155605 215735 277601 343807 Other Liabilities & Provisions 11251 6065 10947 17188 Total Liabilities 195768 269339 341098 420105 Assets Loans and Advances 177115 252926 322081 398968 Net Block 4941 5527 5764 5973 Investments & Other Assets 13712 10886 13253 15163 Total Assets 195768 269339 341098 420105 Valuation Ratios FY11 FY12 FY13E FY14E Earning Per Share (Rs) 2.8 2.7 3.4 4.5 Book Value Per Share (Rs) 20 28 31 34 Adj Book Value Per Share (Rs) 20 26 28 32 P/E (x) 19.6 20.4 15.8 12.0 P/BV (x) 2.7 2.0 1.8 1.6 P/ABV (x) 2.8 2.1 1.9 1.7 Growth Y-o-Y (%) Loan and Advances 48.2 42.8 27.3 23.9 Borrowings 55.9 38.6 28.7 23.8 Balance Sheet 57.2 37.6 26.6 23.2 Net Interest Income 47.9 43.7 30.6 25.3 Net Income 45.3 21.3 27.2 26.1 Net Profit 53.6 15.9 29.1 31.5 Return Ratios (%) ROE 15.0 11.9 11.7 13.8 ROA 2.4 2.0 1.9 2.0 Yield / Margin (%) Yield on Funds 13.9 13.8 13.5 13.5 Cost of Funds 8.0 9.2 9.2 9.1 Interest Spread 5.9 4.6 4.3 4.4 Net Interest Margin 7.0 5.9 5.6 5.6 Net Profit Margin 18.5 15.1 14.9 15.7 Other Ratios (%) Cost / Income 29.3 33.6 31.2 30.2 Interest Expense / Interest Income 49.5 58.8 59.7 59.5 Net Interest Income / Net Income 95.1 97.0 96.3 96.6 IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 6

IndiaNivesh Securities Private Limited 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800 / Fax: (022) 66188899 e-mail: research@indianivesh.in Website: www.indianivesh.in Disclaimer: This document has been prepared by IndiaNivesh Securities Private Limited (IndiaNivesh), for use by the recipient as information only and is not for circulation or public distribution. This document is not to be reproduced, copied, redistributed or published or made available to others, in whole or in part without prior permission from us. This document is not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. The information contained in this document has been obtained from sources that are considered as reliable though its accuracy or completeness has not been verified by IndiaNivesh independently and cannot be guaranteed. Neither IndiaNivesh nor any of its affiliates, its directors or its employees accepts any responsibility or whatever nature for the information, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this material only. IndiaNivesh directors and its clients may have holdings in the stocks mentioned in the report. To unsubscribe please send a mail to mail@indianivesh.in Home IndiaNivesh Research L&T Finance Holding Ltd. Result/Concall Update October 23, 2012 7 IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.