STOCK IDEA

L&T Finance Holdings

Asset quality improves

Focus on B2C products in the retail business and operational projects in the wholesale segment

L&T Finance Holdings conducted an analyst meet on 24 April 2015 to discuss the results for the quarter ended March 2015Chairman and Managing Director Y M Deosthalee and President and Wholetime Director N Sivaraman addressed the cal.: Highlights:

Consolidated net profit of L&T Finance Holdings grew 10% to Rs 205.56 crore in the quarter ended March 2015 over a year ago. The profit growth was aided by healthy margin, increased fee income, stable capex and improvement in asset quality. The net interest margin of the lending business improved to 5.71% from 5.66% in the December 2014 quarter and 5.62% in the same quarter a year ago.

Gross non-performing assets (NPAs) declined to 2.25% end March 2015 compared with 3.01% end December 2014. Net NPAs dipped to 1.26% at end March 2015 as against 1.98% end December 2014. This improvement was due to robust collections and judicious sale of certain stress assets to asset reconstruction companies.

Accelerated provision of Rs 48 crore was made in the quarter and Rs 96 crore in the fiscal ended March 2015 (FY2015) to strengthen the balance sheet. Accelerated provisions included impact of increase of standard asset provisions to 0.30% from 0.25%, income reversal recognized on 150 to 180 days past due assets and voluntary provisions on select stress accounts.

The provision coverage ratio improved to 44% end March 2015 from 28% end March 2014. Around Rs 230 crore of provisioning, in excess of the Reserve Bank of India norms were carried end March 2015.

Loans grew 18% to Rs 47232 crore end March 2015 over Rs 40082 crore end March 2014, led by a healthy disbursement growth of 25% in key focus areas: B2C products including tractors, two-wheelers, housing and microfinance in the retail business and operational projects in the sectors of renewable power and roads in the wholesale business.

B2C products constituted 57% of the total loan outstanding (B2B the rest 43%) in the retail business, while operating projects accounted for 47% of the total loan outstanding in the wholesale business.

There was strong growth in disbursements, especially in the home loan segment, leading to doubling of loan book. Gearing improved to 10.0x, indicating optimum utilization of net worth. Improvement in asset quality was led by decrease in gross NPA in the organic and inorganic portfolios.

Two assets of net book value Rs 159 crore were sold at Rs 41 crore in the March 2015 quarter. Loss will be amortized equally over eight quarters.

The investment management business clocked a 23% growth in the average assets under management (AAUM) to close the year at Rs 22497 crore compared with Rs 18255 crore in the same period a year ago. Equity assets surged 78% to Rs 8774 comprising 39% of total AAUM. The rank based on AAUM improved to 13 in the quarter. Improved equity mix was led by higher inflows in the year and the quarter.

Two innovative products were launched in the year: L&T Business Cycles Fund (largest contributor to net sales, with AUM growing from Rs 380 crore to Rs 1200 crore; and L&T Resurgent India Corporate Bond Fund, with AUM of Rs 220 crore. The AMC business began to contribute positively to the bottom line due to strong growth in revenues and optimal cost structures.

The focus has been on diversifying sources of funds. The proportion of market borrowings has been increased, while bank borrowing reduced to 33% in FY 2015 from 47% a year ago.

A healthy asset growth of 25% is aimed for FY2016.The trajectory of improvement in returns is expected to continue, aided by stability in key operating metrics and optimization of leverage.

Renewable and roads will continue to be the focus areas. The focus will be on operating projects: 54% of FY 2015 disbursements were to operating projects. Credit cost included accelerated provisions of Rs 48 crore on certain stressed assets.

The operating environment is yet to show significant improvement, while certain restructured assets show continued levels of stress. Unseasonal rains and expected deficient monsoon could have an impact on the rural sector in the quarter ending June 2015. Consequently, the improvement in delinquencies and stressed assets could be moderate.

SOURCE: CAPITALMARKET