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Retailisation to drive long-term growth

L&T Finance Holdings Limited is a financial holding company offering financial products and services in the corporate, retail and infrastructure finance areas, along with fund products and investment services.

• In Q4FY22, NIM + Fees margin was at 8.17% on the back of highest ever quarterly & yearly retail disbursement and lowest ever cost of borrowing of 7.34%.

• Retail book increased 10% YoY making retail portfolio mix of 51%

• Collection Efficiency surpassed pre-covid levels in Q4FY22 backed by strong data analytics led inputs.

• Looking at strong business momentum, and continued focus of increasing Retailisation to drive growth over the long term. we continue to see great potential in the business. We therefore reiterate our BUY rating with a rolled forward target price of Rs. 90 based on 1x FY24E BVPS

Strong business momentum; Sustainable margins

L&T Finance Holdings’ (LTFH) Interest income for FY22 decreased by 10.7% YoY to Rs. 11,704cr, Interest expense reduced even further by 20.1% YoY to Rs. 7,200cr delivering stable NIM of Rs. 5,950cr up 0.8% YoY. NIM + Fee margin increased by 7bps QoQ, to reach 8.17% in Q4FY22, mainly through increased retail disbursements (+22.0% YoY). L&TFH remains well protected from an expected liquidity tightening and an increase in interest rates; it registered the lowest weighted average cost of borrowing (WAC) in the quarter at 7.34%, down from 7.47% in Q3FY22, reduction in quarterly WAC by 31bps YoY. LTFH reported PAT of Rs. 1,070cr for FY22, an increase of 10.2% YoY giving out ROE which increased by 57% YoY at 13.55% for FY22 and that for the Q4FY22 increased 58% YoY to 19.7%. Collections remain robust across businesses, Collection Efficiency surpassed pre-Covid levels in Q4FY22 backed by strong data analytics led inputs.

Accelerated Retailisation in FY22

LTFH witnessed highest ever Quarterly and Yearly retail disbursements in Q4FY22 which led to a growth of 42% YoY in FY22 to Rs.24,901cr of disbursements and a growth of 22% YoY in Q4FY22 to Rs. 8,105cr. Owing to enhanced on-ground collection efforts and analytics-based resource allocation the company remained as one of the leading retail financiers, as the retail book increased by 6.0% QoQ. Retail portfolio mix is now at 51%, an increase from 40% in Q3FY21. As part of its “Lakshya 26” goals LTFH plans on growing Retail business >80% of the balance sheet and >25% CAGR for the Retail business

Key Concall highlights

• Company has currently undertaken a pilot launch of SME loans, with end-to-end digital journey and use of analytics to deliver value added proposition for its customers & channels.

• Board has recommended a final dividend of Rs 0.5 per share for FY22.

Outlook & Valuation

Looking at sustainable margins, low WAC, and improved collections along with strong business momentum backed by accelerated retailisation and optimistic goal of increasing Retail business to >80% of the portfolio and commitment to deliver CAGR of >25% as a part of LTFH’s Lakshya 2026 goals, we see great potential in the stock in long term. We therefore reiterate our BUY rating on the stock with a rolled forward target price of Rs. 90 based on 1x FY24E BVPS.

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