Management in the analyst meet highlighted focus on select businesses and reallocation of capital towards better quality assets (rural, home loans). Headline asset quality improved, but lumpy exposures like IL&FS (Rs 18 bn) and Supertech (Rs 8 bn) remain standard and under-provided. However, it has created macro provisions of Rs 3.5 bn (Rs 2.6 bn for rural and Rs 0.9 bn for housing) for unanticipated risks.
LTFH has witnessed some slowdown in growth rate but margin, asset quality and return ratios have been protected. Lumpy exposures to IL&FS and Supertech still pose challenge (and we will be watchful of the same). The current valuation of ~1.4x FY21E P/ABV offers decent risk reward and the strong parentage of L&T will help tide over current liquidity and NBFC crisis. LTFH is geared to launch SME business loan in FY20 (which won’t be loan against property). Financial track record, transaction behaviour and increased bureau penetration would make this product successful.
