IGI Logo

Transient impact of COVID 2.0; recovery held up well in Jun’21

* LTFH reported a 1QFY22 PAT of INR2.7b (35% miss). Additional COVID-19 provisions stood at INR3.7b in 1QFY22. It further restructured INR9.8b under OTR 2.0. While NII was broadly in line, lower other income, and higher opex (up 31% YoY) led to a PAT miss.

* Loan book fell ~11% YoY in 1QFY22, driven by a QoQ decline in Micro loans, 2W finance, and Real Estate finance.

* Even though LTFH has accounted for most of the asset quality pain, there will be a moderation in AUM growth and consequent higher cost ratios. We cut our FY22E/FY23E EPS estimate by 21%/19%. We maintain Buy with a TP of INR110 per share (1.2x FY23E BVPS).

Disbursements impacted in May’21, the situation improved in Jun’21

* Disbursements fell 36% QoQ to INR52.2b. In May’21, disbursements were impacted across product segments, except Infrastructure. Tractors continued to witness robust demand, with a 9% QoQ growth, and supported overall rural disbursements, even as 2W and ML disbursements were impacted by lockdown/collection constraints.

* Disbursements in Home Loans/LAP/Real Estate remained muted, with continued conservatism in financing the SENP segment and no new sanctions in Wholesale Real Estate lending.

* Despite decent disbursements in the Wholesale/Infra segment, the corresponding loan book fell ~11% QoQ because of strong collections through sell downs and repayments/prepayments.

Housing collections most impacted; LTFH again building up a provision buffer

* Collection efficiency across product segments showed a lot of promise after the lifting of lockdown restrictions post the second COVID wave. Collections (focused business) fell ~5% QoQ to INR132b. Collections were strong in Infrastructure, decent in rural, but Housing Finance collections were impacted the most (down 37% QoQ).

* LTFH reversed INR7b of COVID-related provisions in 4QFY21. To guard against contingencies, it made additional provisions of INR3.7b in 1QFY22. Total additional provision buffer stood at INR14b (1.6% of loans).

* GNPL ratio increased by ~80bp QoQ and stood at 5.75%. PCR on Stage 3 assets declined by 400bp to 65.4%. Rural Finance continued to exhibit a deterioration and the respective GS3 stood at 4.4% (up 40bp QoQ).

Spreads stable; margin sees a QoQ decline; AMC AUM exhibited growth

* Spreads (calculated) were stable QoQ at 6.2% as the marginal decline in blended yields was mitigated by a similar benefit in CoF. NIM (healthy nonetheless) exhibited a QoQ decline of ~20bp due to the negative carry from higher liquidity.

* Average AUM in the AMC was up 4% QoQ to INR755b, led by a 5% increase in equity AUM. PAT stood at INR470m in 1QFY22 (v/s INR560m QoQ).

Key highlights from the management commentary

* The management’s focus will be on retailization of its book going forward.

* It expects NIM + fees to continue its current healthy trajectory.

Valuation and view

Rural businesses witnessed improving MoM disbursement/collection trends in JunJul’21. LTFH has been consolidating its loan book over the past many quarters. We expect this to continue over the next 2-3 quarters. We expect disbursements in 2W/ML to pick-up as collections improve. Restructured pool (including OTR 2.0) was contained at 2.6%, with a PCR of 14%. Gradual normalization in excess liquidity on the Balance Sheet will reduce the negative carry and support margin. We cut our FY22E/FY23E EPS estimate by ~21%/~19%. We maintain our Buy rating with a TP of INR110 per share (1.2x FY23E BVPS).

To 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