Buy Larsen and Toubro Finance Holdings; target of Rs 110: Motilal Oswal

Motilal Oswal's research report on Larsen and Toubro Finance Holdings

LTFH reported 4QFY23 consol. PAT of ~INR5b (in line), up 47% YoY. PPOP grew by 12% YoY to INR12.7b (in line), while credit costs came in at ~INR5.2b. FY23 consol. PAT grew 52% YoY to ~INR16.2b. 4QFY23 retail PAT grew 58% YoY to ~INR4.7b. FY23 retail PAT increased 87% YoY to INR13.8b. Retail RoA/RoE stood at ~2.5%/13.8% in FY23. Management targets to improve the retail mix to ~90% by Mar’24, which we believe could be achieved in the next few quarters. Considering the consistent rundown in the wholesale book, we model loan growth of 11%/22% in FY24/FY25E. We estimate a PAT CAGR of 25% over FY23-FY25, with consolidated RoA/RoE of 2%/10% in FY25. A strong liability franchise, a well-capitalized balance sheet and a keen intent to further accelerate the sell-down of the wholesale book augur well for LTFH to achieve its Lakshya 2026 goals.

Outlook

We believe LTFH is set to transform itself into a primarily retail franchise, which could lead to profitability improvement and RoA expansion. Maintain BUY with a TP of INR110 (based on 1.1x FY25E consolidated BVPS).