Buy L&T Finance Holdings; target of Rs 235: JM Financial

JM Financial's research report on L&T Finance Holdings

Over the past month, LTFH ’s stock price has corrected by 23%  and we believe  the  CMP  provides an attractive entry point due to : i) Improving RoE trend s - profitability over the last 6  quarters has improved with reported ROE improving from 9.7% in to 1 5 . 2 % despite  the  company providing for voluntary provisioning of INR 8.9bn and accelerated provisioning of  INR 5.3bn ; ii) While PSU  banks ’ recap would increase  competitive intensity in  infrastructure/LAP , LTFH would benefit from the increase in down - selling opportunities ; and  iii)  The company has hired senior  staff  from Bajaj Finance and Piramal Finance for its credit  analytics and housing team.

Outlook

We expect strong earnings (37% CAGR over FY17 - 20E) and expect RoA/RoE to improve to 2.1%/21%, respectively, in FY20E vs.  1.35%/12% in FY17. We value LTFH at 3.4x Mar’20, a  implying Mar’19 TP of INR 235. For all recommendations report, click here

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