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Updated January 4th, 2024 at 11:21 IST

L&T Finance Holdings shifts focus to retailisation, eyes 3% RoA by FY26

L&T Finance: The company's focus on customer acquisition funnels in Rural Financing and 2W Financing sets the stage for cross-selling and upselling.

Tanmay Tiwary
L&T Finance
L&T Finance | Image:Freepik
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L&T Finance in focus: L&T Finance Holdings (LTFH) is set to conclude its transition from a challenging "focussed-defocussed segments” strategy to the fruition of its 'Lakshya 2026'-led retailisation plan. With retail assets now constituting over 90 per cent of its loan book, the company leverages sustainable advantages in Rural, 2W, and Farm Equipment segments.

 

A robust balance sheet, marked by macro-prudential provisions and prudent asset valuations, instils confidence in sustained profitable growth, according to brokerage firm Emkay.

Sudipta Roy, a retail lending professional with expertise in technology and analytics, assumed the role of CEO earlier this week, bolstering LTFH's pursuit of achieving a consolidated Return of Assets (RoA) of 3 per cent in FY26 and beyond. 

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The established retail business, complemented by forays into adjacent sectors such as cards, micro-LAP, and gold loans, positions the company for diversified growth opportunities, Emkay highlighted.

Despite a tumultuous history in wholesale lending, LTFH's 'Lakshya 2026' plan has proven successful, establishing sustainable moats in key segments like rural financing, 2-wheeler financing, and farm equipment financing, the brokerage firm noted.

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The company's focus on customer acquisition funnels in Rural Financing and 2W Financing sets the stage for cross-selling and upselling, supported by Sudipta Roy's leadership.

With strong margins and a provisioning buffer, LTFH anticipates a sustainable RoA of approximately 3 per cent. Core retail segments, while cyclical, benefit from robust yields, enabling conservative credit cost provisioning. 

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The company maintains macro-prudential provisions in its retail book and foresees the potential utilisation of provisions in the wholesale book.

Minor adjustments to estimates reflect the accelerated rundown of the wholesale book and the realisation of SR receivables in FY25 and FY26.

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“We marginally tweak our FY24-26 estimates and upgrade the stock to ‘Buy’ from ‘Reduce’, with revised December 2024 estimate target price (TP) of Rs 190 per share, up from the earlier Sep-24E TP of Rs 155,” Emkay said.

Financial performance 

L&T Finance Holdings topline experienced a growth of 7.1 per cent, while the profit surged 46.4 per cent YoY. Compared to the previous quarter, L&T Finance Holdings maintained its upward trajectory, achieving a 5.1 per cent growth in revenue and an impressive 12.1 per cent increase in profit. 

However, an increase in selling, general, and administrative expenses was noted, with a quarter-on-quarter (q-o-q) rise of 10.4 per cent and a notable 31.1 per cent YoY increase. This suggested that the company may have encountered elevated operational and management costs.

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However, L&T Finance Holdings exhibited a modest improvement in operating income, rising by 1.4 per cent q-o-q and 3.01 per cent YoY. 

The earnings per share (EPS) for Q2 FY24 reached Rs 3.58, reflecting a notable  YoY increase of 42.8 per cent. 

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The shares of L&T Finance Holdings settled 2.34 per cent higher at Rs 166 per share.

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Published January 4th, 2024 at 08:41 IST

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