Hold Larsen and Toubro Finance Holdings; target of Rs 105: Sharekhan

Sharekhan's research report on Larsen and Toubro Finance Holdings

Despite retail loans growing strongly (up 35% y-o-y/ 7% q-o-q), overall loan book growth declined by 8% y-o-y/ 9% q-o-q mainly driven by large sell downs in the wholesale book. The wholesale book declined by 53% y-o-y and 37% q-o-q due to larger sell-down/prepayment. This appears unusually high and may not be recurring. Thus, we believe overall loan book growth will remain muted in the near to medium term despite growing its retail book aggressively, leading to suboptimal RoE. Share of retail assets rose to 76% in FY2023 vs. 51% of total loans in FY2022. Management is guiding for the share of retail assets at 90% of loans in FY2024. We like the strategy of repositioning of portfolio growth from product-based to customer-centric and focusing on cross-selling and up-selling, which is positive for the franchise from a medium to long-term perspective.

Outlook

At the CMP, the stock trades at 1.0x/0.9x its FY2024E/FY2025E BV estimates, respectively. We maintain our Hold rating with an unchanged PT of Rs. 105. We believe the diminishing wholesale book will constrain loan growth and RoE despite strong tailwinds in the sector.

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