Buy Larsen and Toubro Finance Holdings; target of Rs 116: Emkay Global Financial

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26 Aug, 2025 12:21

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Emkay Global Financial's research report on Larsen and Toubro Finance Holdings

LTFH reported Q3FY23 PAT of ~Rs4.5bn, around 3% above our estimates, primarily driven by higher than expected interest income due to change in the asset mix towards retail products. In the seasonally-strong festive quarter, disbursements grew 19.1%QoQ/32.8% YoY, led by the highest-ever quarterly disbursements in the 2W and farm-equipment segments as well as sustained healthy disbursements in home loans and LAP. Overall AUM, however, declined 1.9%QoQ/grew 3.4%YoY, due to accelerated repayments/pre-payments (Rs42.2bn) and sell-downs (Rs29.5bn) in the wholesale finance segment. Retail disbursements grew 13.4% QoQ/52% YoY, resulting in retail AUM growth of 9.5% QoQ/33.8% YoY to ~Rs570bn. The retail AUM now accounts for 64% of the overall book (Q3FY22: 50%); Management expects this share to touch ~90% by FY24- end. Wholesale disbursements grew 90.8% QoQ (on a low base)/declined 32.8% YoY. However, the aforementioned repayment/prepayment & sell-downs resulted in the wholesale AUM declining 17.5%QoQ/24% YoY to ~Rs310bn.

Outlook

We roll over our forecasts to Mar-24 and retain our BUY rating on the stock, with a Mar24E TP of Rs116 (earlier Rs100), valuing the lending business based on the ‘Excess return on Equity’ (ERE) method. Our TP implies Mar-25E P/BVPS of 1.3x of its lending book BVPS of Rs87, for FY25E RoE of 13.7%. Leverage estimates are expected to increase from FY25.

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L&T Finance Holdings - 17 -01-2023 - emkay