Company Update : L&T Finance Holdings Ltd By Motilal Oswal Financial Services Ltd
Credit costs elevated; MFI stress continues to run its course.
NIM + fees declined ~50bp QoQ due to a change in the product mix
* L&T Finance’s (LTF) 3QFY25 PAT declined 2% YoY to INR6.3b (~6% beat). PPoP (in-line) grew ~11% YoY to ~INR14.8b.
* Credit costs stood at INR6.5b (in-line), translating into annualized credit costs of ~2.5% (PQ: 2.6% and PY: 2.5%). The company utilized macro-prudential provisions of INR1b during the quarter. Including macro-prudential provisions, credit costs for the quarter stood at ~2.9%. The company guided for macro-prudential provision utilization of INR3b-3.5b in 4QFY25.
* LTF also completed an ARC transaction, resulting in a provision reversal of ~INR2.5b. Write-offs stood at ~INR7.4b. Adjusting for provision reversals from the ARC transaction, the write-offs would have been ~INR10b.
* Total loan book grew ~16% YoY and ~2% QoQ to ~INR951b. Wholesale loans continued to run down, declining ~28% YoY to ~INR29b (PQ: ~INR40b).
MFI disbursements continue to remain muted; personal loans grow ~9% YoY
* Retail assets contributed ~97% to the loan mix (PQ: 96%). Retail loans grew ~23% YoY, led by healthy growth in Tractors, HL, LAP, and Personal Loans. The company has started re-growing its personal loans book, which saw ~9% QoQ increase. Rural Business Loans (MFI) and 2W remained flat QoQ.
* Total disbursements in 3QFY25 grew ~2% YoY to ~INR152b, driven by ~5% YoY growth in retail disbursements. Wholesale disbursements were NIL during the quarter.
Asset quality largely stable; retail GS3 stands at ~2.85%
* Consol. GS3 rose ~5bp QoQ to ~3.25% and NS3 was stable QoQ at ~1%. PCR was stable at ~71%.
* Retail GS3 was stable QoQ at 2.85%
Collection efficiency dips in Dec’24; LTF+4 customers stand at ~3.9%
* MFI collection efficiency (0-90dpd) stood at ~97.9% in Dec’24 (vs 98.3% in Sep’24).
* Only ~3.9% (PQ: ~5.4%) of LTF’s MFI customers have loans from five or more lenders (including LTF).
NIM contracts ~45bp QoQ; fee income reduces sequentially
* Spreads (calc.) declined ~10bp QoQ to ~8.8%. Yields (calc.) rose ~10bp QoQ to ~16.2%, while CoF (calc.) rose ~20bp QoQ to 7.3%.
* Reported NIM contracted ~45bp QoQ to 8.5%. However, Consol NIM + fees declined ~50bp QoQ to 10.3%, driven by lower fee income and a decline in MFI in the loan mix.
Valuation and view
In the retail segment, Home Loans, Tractors, LAP, and SME continue to exhibit strong growth, with retail now contributing ~97% to the loan mix. Stress in the MFI segment continues to remain pronounced and will run its course before conditions begin to improve. We will review our estimates after the earnings call on 21st Jan’25.
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