Buy Larsen and Toubro Finance Holdings; target of Rs 125: Emkay Global Financial

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

L&T Finance Holdings (LTFH) reported Q4FY23 PAT of ~Rs5bn (+10.4% QoQ/+46.4% YoY), in-line with consensus estimates. This was driven by sequentially lower credit costs and adding back loss attributable to minority interest with respect to a subsidiary. Overall, disbursements were weak off a high base in Q3. The rapid run-down of the wholesale book resulted in overall AUM falling 8.5% QoQ to ~Rs808bn. Credit costs declined ~40bps QoQ. Retail asset quality was broadly stable, while PCR on wholesale finance rose to 55.7% in Q4 from 36.1% in Q3, resulting in wholesale NS3 rising 52bps to 3.89%.

Outlook

We assume coverage with a BUY rating and a Mar-24E TP of Rs125, using the excess return on equity (ERE) method. Our TP implies a Mar-25E P/BVPS of 1.2x for FY26E RoA of ~2.3% and RoE of ~12.4%. Key risks: Asset-quality shocks in wholesale finance.