IGI Logo

Strong growth in the retail book; retail RoA/RoE of 2.5%/14% in FY23

* LTFH reported 4QFY23 consol. PAT of ~INR5b (in line), up 47% YoY. PPOP grew by 12% YoY to INR12.7b (in line), while credit costs came in at ~INR5.2b. FY23 consol. PAT grew 52% YoY to ~INR16.2b.

* 4QFY23 retail PAT grew 58% YoY to ~INR4.7b. FY23 retail PAT increased 87% YoY to INR13.8b. Retail RoA/RoE stood at ~2.5%/13.8% in FY23.

* Management targets to improve the retail mix to ~90% by Mar’24, which we believe could be achieved in the next few quarters. Considering the consistent rundown in the wholesale book, we model loan growth of 11%/22% in FY24/FY25E. We estimate a PAT CAGR of 25% over FY23-FY25, with consolidated RoA/RoE of 2%/10% in FY25.

* A strong liability franchise, a well-capitalized balance sheet and a keen intent to further accelerate the sell-down of the wholesale book augur well for LTFH to achieve its Lakshya 2026 goals. We believe LTFH is set to transform itself into a primarily retail franchise, which could lead to profitability improvement and RoA expansion. Maintain BUY with a TP of INR110 (based on 1.1x FY25E consolidated BVPS).

Strong momentum in retail disbursements with ~40% YoY growth in 4QFY23

* Total disbursements in 4QFY23 declined by 16% YoY/6% QoQ to ~INR123b, primarily because of an ~84% YoY drop in wholesale disbursements. FY23 total disbursements grew 26% YoY to ~INR470b.

* FY23 retail disbursements grew ~70% YoY to ~INR421b. Retail assets contributed 75% to the portfolio mix (PY: 51%). LTFH has aggressively run down its wholesale book and sold ~INR270b of wholesale assets in FY23. It is confident of improving the retail mix to ~90% by FY24.

* Loan book declined ~9% QoQ/~8% YoY to INR805b, largely due to an accelerated reduction in the wholesale portfolio, which fell 53% YoY to INR195b (PY: ~INR417b). Infra book declined ~55% YoY to ~INR137b.

* Retail book grew 35% YoY, led by MFI, home loans and consumer finance

Wholesale asset quality deteriorated due to the rundown in this segment

* GS3 increased ~50bp QoQ to 4.7%, while NS3 declined ~20bp QoQ to 1.5%, due to a ~9pp increase in PCR to 69%.

* Retail GS3 improved ~5bp QoQ to 3.4%, while wholesale GS3 deteriorated by ~3pp QoQ to 8.4% due to a decline in the wholesale book. The company is witnessing consistent improvements in collection efficiency and expects the retail book’s asset quality to further improve.

* LTFH is carrying additional provisions (including OTR provisions) of ~INR11.7b (~2.0% of standard assets) over and above the ECL provisions.

Expansion in margins driven by improvement in retail mix

* NII grew by 7% YoY to INR17.7b. Retail NIMs+Fees improved ~15bp YoY to ~11.9%, while Consol NIMs+Fees improved ~80bp YoY to 8.4% in 4QFY23. Yield improvement was driven by a higher retail mix in the portfolio.

Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer