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Global brokerage sees 42% upside in L&T Finance despite dip in Q2 profit, here's why

Goldman Sachs has tweaked EPS estimates by an average of -1% over FY22-24. L&T Finance can generate 2.9% RoA/14.5% RoE by FY24, the research firm added.

October 21, 2021 / 10:26 AM IST
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L&T Finance Holdings share price was trading over 4 percent lower in the morning session on October 21, a day after the non-banking financial company reported a 10 percent decline in consolidated net profit to Rs 223 crore for the second quarter ended September 2021.

L&T Finance Holdings  posted a net profit of Rs 248 crore in the corresponding period of the previous financial year. Its total income during July-September 2021 fell to Rs 3,134.46 crore as against Rs 3,508.91 crore in the year-ago period, LTFH said in a regulatory filing.

Among the market leaders in farm equipment finance, two-wheeler finance and micro loans, the firm said it witnessed the highest-ever disbursement in rural finance during the quarter, while retail disbursements grew 55 percent quarter-on-quarter.

All LTFH businesses witnessed robust disbursement momentum. Rural finance business saw the highest-ever Q2 disbursement at Rs 4,987 crore, a jump of 51 percent quarter-on-quarter, it said.

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The stock was trading at Rs 87.30, down Rs 4.15, or 4.54 percent at 09.50 am. It has touched an intraday high of Rs 89.50 and an intraday low of Rs 86.35.

Global research firm Goldman Sachs has a "buy" rating on the stock with the target at Rs 124 a share, an upside of 42 percent from the current market price.

The research firm is of the view that the company had a well-managed Q2 despite a slight deterioration in the asset quality. Retail and MSME were likely to emerge attractive profit pools for the industry over the next few years and  L&T Finance was well-positioned, CNBC-TV18 reported Goldman Sachs as saying.

The global brokerage firm tweaked EPS estimates by an average of -1 percent over FY22-24. L&T Finance can generate 2.9 percent RoA/14.5 percent RoE by FY24, the it said.

According to a Motilal Oswal report, L&T Finance's rural businesses continued to improve in operational metrics, with sequentially stable asset quality.

The company is close to bottoming the consolidation in its loan book, with pickup expected in infra disbursements and retail housing/LAP, it said.

"We remain watchful of potential slippages in its real estate finance segment (as in the current quarter). However, given the buoyancy in the real estate sector, we expect the resolutions for such stressed exposures to be relatively quicker than seen in the past," it said.

"L&T Finance carries adequate additional provisions (including OTR provisions) of 2.2 percent of standard loans. These are over and above ECL provisions and should provide the necessary buffer to protect against contingencies in the micro loans and real estate segments," the brokerage firm said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Sandip Das
first published: Oct 21, 2021 10:26 am

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