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Mixed bag performance

* LTFH reported an AUM decline of ~4.4% yoy to Rs940.1bn (-6.1% qoq) due to sell-down in wholesale book along with sequentially weak disbursements. Infrastructure witnessed a steep decline in disbursements by ~75% qoq along with tractors & 2W portfolios. However, the company has maintained its leadership position in tractors and 2W businesses.

* NIMs + fees improved to ~817bps (highest since FY17) due to a decline in borrowing costs amid immense systemic liquidity. The surge in fee income is also attributable to increasing cross-sell activities for the company, especially in rural markets. Though the interest income had few one-offs, the company’s liability franchise remained robust.

* Overall provisions fell sequentially to Rs6.5bn vs. Rs10.2bn last quarter as management utilized macro provisions of Rs7.1bn in Q4FY21. Accordingly, credit costs declined to ~270bps vs. ~406bps last quarter. LTFH holds macro specific provisions of Rs10.3bn.

* We prefer to remain cautious toward LTFH’s MFI and rural portfolios amid the second wave of Covid-19. We modify our EPS estimates by 4.7%/9.2% for FY22/23. We introduce FY24 estimates and revise the TP to Rs100 (Rs108 previously), corresponding to 1.3x FY23E P/ABV. We maintain the Hold rating and EW stance in our NBFC EAP.

Selective growth strategy with preference toward retail lending continues: LTFH has reported an AUM decline of ~4.4% yoy to Rs940.1bn (-6.1% qoq) due to sell-down in whole sale book along with sequentially weak disbursements across lending segments. Overall disbursements remained flat on a YoY basis but declined ~25% qoq to Rs81bn. Infrastructure lending witnessed a steep decline in disbursements by 75% qoq and 38% yoy and tractor and 2W portfolios also seen sequential decline in disbursements. However, the company has maintained its leadership position in farm equipment and 2W businesses.

Improving collections; asset quality trends stable: The GS3 assets of the company stood at 4.97% in Q4, a reduction of 39bps yoy and 15bps qoq. The company reported a PCR of 69% vs. 59% in Q4FY20. Defocussed book now forms ~2.9% of the AUM (~Rs27bn). Overall provisions dipped sequentially to Rs6.5bn vs. Rs10.2bn last quarter as management has utilized macro provisions of Rs7.1bn during the quarter. Accordingly, credit costs during the quarter declined to ~270bps vs. ~406bps last quarter and ~303bps last year. The company still holds macro specific provisions of Rs10.3bn.

Outlook and valuation: We had upgraded LTFH to Hold from Sell after Q2 result on the back of improving rural outlook, reduction in defocussed book and increase in provisioning buffers. We modify our EPS estimates by 4.7%/9.2% for FY22/23. We introduce FY24 estimates. We revise the TP to Rs100 (Rs108 previously), corresponding to 1.3x FY23E P/ABV. Maintain the Hold rating and EW stance in our NBFC EAP

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