Buy Larsen and Toubro Finance Holding ; target of Rs 100: Emkay Global Financial

Emkay Global Financial's report on Larsen and Toubro Finance Holding

Apollo Global Management is in advanced talks with LTFH to acquire real estate loans worth Rs80-90bn in a deal pegged at $1bn, reported The Economic Times (Link). As of Mar’22, LTFH’s real estate wholesale loan book stood at Rs112bn. The report suggests the deal is expected to be finalized in the next few weeks. The deal will be carried out via a newly floated alternative investment fund (AIF), co-owned by both LTFH and Apollo Global, according to the report. The deal is similar to Apollo Global’s previous deal with Piramal Capital and Housing Finance (a unit of Piramal Enterprises). The transaction will help LTFH get upfront cash, which it could use to deleverage the balance sheet and move toward its aim of becoming a retail-focused NBFC. Under the deal, the debt outstanding on LTFH’s real estate book will be refinanced either via bonds or NCDs and thereafter will be moved to the AIF. These loans have a 15-16% average yield. Apollo Global will get a portfolio of real estate assets with some first-loss protection as well as an added benefit of building a good relationship with L&T.

Outlook

During the FY22 analyst meet, LTFH management said that since LTFH is now focusing on becoming a retail-focused NBFC, it aims to limit its exposure to the wholesale finance business, especially the real estate finance business. LTFH expects to increase the share of retail loans to ~80% of the loan book by FY26, with a 25% CAGR in retail loans. LTFH seeks to achieve this retailization with the help of fintech at scale wherein the company has made major investments in the past few years.