Motilal Oswal's research report on Larsen and Toubro Finance Holdings
LTFH reported a 3QFY23 consolidated PAT of ~INR4.5b (up 47% YoY, 8% beat), driven by a ~40bp QoQ expansion in NIMs (and fee income) which were aided by an improving retail mix. LTFH concluded the sale of its MF business with a pre-tax gain of ~INR26.1b. The proceeds were utilized for one-time exceptional provisions of ~INR26.9b to enable accelerated sell-down of the wholesale book. Management has guided that this would adequately cover any downside risks of an accelerated sell-down without any impact on retail profitability. We expect the proportion of the retail mix to improve to 85%/93% by FY24/FY25E. We have increased our FY23/FY24 EPS estimates by ~9% each to incorporate higher margins and a moderation in credit costs. Including the sharp run-down in the wholesale book, we model loan growth of 7%/18% in FY24/FY25E. We estimate a PAT CAGR of 33% over FY22-FY25E for a consolidated RoA/RoE of 2%/10.2% in FY25.
Outlook
A strong liability franchise, a well-capitalized balance sheet and a keen intent to accelerate the sell-down of the wholesale book position LTFH well to achieve its Lakshya 2026 goals. LTFH is at a cusp where it can turn over a new leaf from FY24. Maintain our Buy rating with a TP of INR120 (premised on 1.2x Sep’24E consolidated BVPS).
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