Accumulate L&T Finance Holdings; target of Rs 170: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on L&T Finance Holdings

LTFH earnings performance beat estimates with lower provisioning and steady loan growth (24% YoY) leading to sturdy 62% YoY growth in PAT at Rs5.6bn (PLe: 4.85bn). While the legacy stressed assets stand sufficiently addressed with consistent PCR improvement and resultant asset quality betterment (steep 385bps decline in GNPA YoY as observed in Q2FY19), the overhang now emerges from the concerns over certain sensitive exposures, viz; default ILFS, construction financing to problematic Supertech and Kerala deluge raise especially in light of current market turmoil. To err on the side of caution, we marginally increase our GNPA estimates (~up to 6-7% over FY19-21E vs 5% earlier) and provision estimates coupled with tad cut on our loan growth targets (19-20% as against earlier 21-22%) as red flags emerge on credit risks augmentation. Despite Management confidence with respect to ring fencing exposures to aforementioned accounts, given the uncertainty in environment we downgrade the stock and recommend ACCUMULATE at dips (stock has corrected ~50% in recent periods) and build in EPS deterioration (16%). Our RoA estimates now stand at 2% and RoE still healthy at 19% by FY21.

Outlook

We roll over target multiple to Sep-21 ABV and arrive at TP of Rs170 (earlier Rs200) valuing lending book at 2.0x and Sub at Rs28.

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