L&T Housing Finance: Should you invest?

About the company:

• L&T Finance Holdings Limited (LTFH) is one of the leading, well-diversified Non-Banking Financial Companies (NBFCs) with a strong presence across lending and investment management businesses.
• LTFH was incorporated in 2008, and in 2011 the Company went on to become a public listed company (BSE and NSE).
• LTFH is a financial solutions provider that caters to the diverse financing needs of its customers across various sectors, including Rural, Housing, Infrastructure, and Mutual Funds.
• The business offers varied products and services that help customers secure both their financing needs as well as their future, including in the unserved and underserved segments of society.
• It is registered with the Reserve Bank of India (RBI) as a Systemically Important Non-Deposit Accepting Core Investment Company (NBFC-CIC).
• It is a holding company with Larsen & Toubro Limited as a parent company.

Area of Operation:

• Its product portfolio across business groups includes Rural Finance (Farm-Equipment Finance, Two-Wheeler Finance, Micro Loans, and Consumer Loans), Housing Finance (Home Loan, Loan Against Property and Real Estate Finance), Infrastructure Finance (Infra Finance, Infra Debt Fund), Investment Management, Mutual Funds, etc.
• The Two-Wheeler Finance business saw a 9% YoY de-growth.
• The Micro-Finance disbursement remained much lower than the pre-Covid levels.
• The consumer loans stood at over 6 Lakhs Cr and grew by 15%.
• Home Loan growth declined in the first quarter owing to the COVID-19 restrictions but it recovered at the end supported by the Government’s push for the sector and attractive incentives by the developers.
• LTFH continues to be one of the leading players in the Infrastructure Finance business (special focus on Renewable, Road, and Transmission).
• The AUM proportion of retail investors for the Company stands at 66%, compared to the industry average of 54%, showcasing a continued focus on realization.

Board of Committees:

Subsidiaries:

As of Financial report 20-21, the company has 8 subsidiaries:

• L&T Finance Ltd.
• L&T Investment Management Ltd.
• L&T Mutual Fund Trustee Ltd.
• L&T Financial Consultants Ltd.
• L&T Infra Debt Fund Ltd.
• L&T Infra Investment Partners Advisory Private Ltd.
• L&T Infra Investment Partners Trustee Private Ltd.
• L&T Mudit Cement Private Ltd.

Competitors:

• Bajaj Finance Ltd (Market Cap of around ₹4,39,630 Cr)
• Mahindra & Mahindra Financial Services Ltd (Market Cap of around ₹19,500 Cr)

Shareholding pattern:

Top Shareholdings:

• Larsen And Toubro Limited – 63.50%
• ICICI Prudential Life Insurance Company Limited – 2.21%
• LIC of India – 1.75%

Industry Overview:

The financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system. However, India’s financial sector is undergoing rapid expansion, both in terms of the strong growth of existing financial services firms and new entities entering the market.

The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector.

Profit and Loss Statement:

Consolidated P&L (in Rs. Crores):

Key Pointers:

• 1. 95% of the revenue comes from the Interest income and the rest from fees and commission income.
• The last two FYs have deteriorated the company’s as well as the industry’s financials.
• Poor net profit growth when compared to its immediate peer.
• Also, the EPS growth can be categorized as poor. 

Standalone Balance Sheet (in Rs. Crores)

Cash Flow:

Standalone Cash Flow (in Rs. Crores):

Financial Ratios:

Stock Price:

Ratios:

Strength:

1. The company has a strong diversified product portfolio with dominating parent company.
2. One of the leading players in Micro Loans and Renewable Finance business.
3. The Institutional Investors and the MF houses seem interested in this company and have upgraded their holdings.
4. Irrespective of the poor business in the last PY, they have been able to reduce their borrowings marginally

Weakness:

1. FIIs have decreased their holding by about 37% from Dec’19.
2. The last two FYs have severely impacted the company’s as well as the industry’s financials.
3. The company’s financials can be categorized as poor for FY21.
4. High-interest payments compared to earnings
5. Their overall financial growth has been below par considering the industry leader Bajaj Finance Ltd and L&T Housing Finance had almost the same revenue in the FY’16.

Opportunity:

1. Rising income is driving the demand for financial services across income brackets.
2. The online credit facility is helping the sector in customer acquisition.

Threat:

• RBI expects the asset quality of NBFCs to deteriorate due to the disruption of business operations caused by the pandemic.
• Companies with rich cash equivalent have failed to put that cash to proper investment use, unlike their peers.

Disclaimer: This shouldn’t be construed as a stock recommendation, investors discretion is advised while investing.

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Team, MyGoalMySip.