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L&T Finance Holdings (LTFH)'s June quarter results were in line with Street expectations. The company posted consolidated net profit (excluding exceptional gains) of Rs 167 crore, up 15.2 per cent over a year. Consensus Bloomberg estimates had pegged it at Rs 163 crore.
The company booked a net gain of Rs 119 crore on sale of shares in City Union Bank, which nearly doubled the reported net profit to Rs 286 crore on a year-on-year basis.
Healthy loan growth and good performance of the investment management and housing finance businesses were key positives. A rise in gross and net non-performing asset (NPA) ratios was the key disappointment. The gross NPAs rose 39 basis points sequentially to 3.57 per cent, on the back of continued stress in the commercial vehicle (CV), construction equipment (CE) and corporate segments.
However, the management believes asset quality pressures have peaked. "We believe some of the NPAs in the June quarter (as weak monsoons affected farmers' repayment ability) should reverse over the next three or four quarters. NPAs seem to have peaked out and could show some stability and reduction. Provisioning is also likely to come down," says N Sivaraman, president.
He added the restructuring pipeline had come down, with no additions.
Despite indications of a pick-up in the macroeconomic factors, the management continues with its cautious stance on lending to the CV, CE and corporate segments. The company expects meaningful revival in private capital expenditure (capex) to take place after at least another two quarters.
LTFH posted loan growth of 19 per cent (in line with that of 20 per cent over a year in the March quarter), on the back of continued traction in the retail (rural products finance, personal vehicle finance and housing finance) and operational asset segments, 42 per cent of the wholesale finance business. The retail and mid-market segment witnessed loan growth of 11 per cent, wholesale finance grew 19 per cent and the housing finance book by 4.1 times on a small base. While retail is half the loan book, the wholesale segment constitutes 45 per cent.
LTFH's newer businesses, investment management and housing finance, continued their good run in this quarter. While housing finance posted a Rs 9 crore profit (Rs 8 crore in the March quarter), investment management maintained break-even, while growing its assets under management by 44 per cent. Management expects the latter's profitability to catch up with revenue growth in a gradual manner.
Improvement in retail business margins was offset to some extent by weak margins of the wholesale business. The consolidated net interest margin of the lending business stood at 5.53 per cent, down marginally by eight basis points sequentially. Credit costs remained flattish, down 1.9 per cent sequentially to Rs 159 crore.
The management expects to clock 20 per cent loan growth and for return ratios to improve. The company is currently checking if a viable business model can be made while adhering to Reserve Bank guidelines on setting up small banks and payment banks; it will, accordingly, decide about applying for these. Most analysts remain bearish on the scrip, given the slowing credit offtake (from earlier levels of 30-plus per cent) and higher asset quality pressures. The average target price of analysts polled by Bloomberg in July stands at Rs 70.66, down 2.5 per cent from Wednesday's closing price. A revival in private capex is the key trigger for the company.
