L&T Finance looks expensive, says Chawathe

L&T Finance is looking expensive at current levels, says Nischint Chawathe, Analyst, Kotak Institutional Equities.

Chawathe told CNBC-TV18, “L&T Finance is trading at a significant premium to our fair value estimates. If we assume or if we say that the entire premium is assigned for the banking licence then one can broadly say that somewhere close to a billion dollars of valuation has been assigned to that. One can’t pin point and say, which is the way market is looking at it. But, clearly the way the stock is trading, it clearly looks very expensive.”
He further added, “There are two parts to this banking licence. Which are the NBFCs which are best placed to get a banking licence? Which are the best NBFC stocks to play today? If you ask me the first question, which are the best NBFCs to get a banking licence, we believe that, Shriram Group that is Shriram Transport and L&T Finance are two entities which are extremely well placed to get a banking licence. This is because Reserve Bank of India’s (RBI) agenda essentially is to focus on entities which can improve financial inclusion and the fact that RBI will want to look at entities which have a strong financial backing and which is exactly the reason why we believe that these two entities are fairly well placed.”
“From a stock point of view, look at the rally in the sector, you find it very difficult to go ahead and say or put a thumbing by any of the stocks in the sector. In the past, we have had a positive bias so we have had a preference to asset finance companies, essentially Mahindra Finance and Shriram Transport but looking at the kind of a rally that you have seen in Shriram Transport recently we believe that the stock is already trading close to its FY14 fair value estimate.”