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

Sharekhan's research report on Larsen and Toubro Finance Holdings

L&T Finance reported PAT at Rs. 453 crore (up 47% y-o-y/12% q-o-q), driven by strong NII growth (24% y-o-y/11% q-o-q). NIM improved by 51bps q-o-q to 7.41% due to higher retail mix (now 64% of total book vs. 58% q-o-q) despite cost of funds increasing by 21bps q-o-q. Overall disbursements grew by 33% y-o-y/19% q-o-q, mainly led by robust growth in retail disbursements, up 53% y-o-y/13% q-o-q. Disbursements in the wholesale segment fell by 33% y-o-y, in line with its strategy to focus on retail. However, AUM grew by only 3% y-o-y and declined by 2% q-o-q. Share of retail assets rose to 64% in Q3FY2023 in Q3FY2023 vs. 58% of total AUM in Q2FY2023. Asset quality was stable with overall GS-3/NS-3 assets at 4.21%/1.72%. PCR on Stage-3 assets improved to 60% vs. 55% q-o-q. Annualized credit cost (as a % of average AUM) reported at 2.9% vs. 2.6% q-o-q and 3.4% y-o-y. Additionally, one-time provisions amounting to Rs. 2,687 crore were set aside for the wholesale book against gains from sale of stake in the mutual fund business amounting to Rs. 2,633 crore.

Outlook

At the CMP, the stock trades at 1.1x/1.0x/0.9x its FY2023E/FY2024E/FY2025E BV estimates, respectively. We maintain our Hold rating with a revised PT of Rs. 105.