LTFH Shifts Focus to retail with Rapid Reduction of Wholesale Loan Book in Q2FY24

Company Overview:

LTFH, a non-deposit taking NBFC, offers a wide range of financial products and services, including 2-wheeler finance, micro loans, home loans, LAP, farm equipment finance, personal loans, and more. As of Q2FY24, the company has established a strong presence in both rural and urban areas, boasting over 1,700 branches in 200,000 villages and 150 branches in 100+ cities and towns. LTFH serves 1.46 crore customers in rural areas and 72 lakh customers in urban areas. The company is well on track to achieve its Lakshya 2026 goal of achieving over 80% retailization, with its current book mix comprising 88% retail and 12% wholesale.

Robust Growth in Retail Disbursement (32% YoY) Driven by HL/Micro Finance/Farm Equipment Financing

Retail disbursements have shown robust growth, increasing by 32% YoY (and 21% QoQ) to reach 13,499 Crores, while wholesale disbursements declined significantly by 76% YoY (and 83% QoQ) to 198 Crores. This has resulted in a 24% YoY increase in total disbursements. In the retail sector, microfinance and home loans grew by 30% YoY and 34%, respectively, while personal loans saw a 2% YoY decrease. The retail loan book stood at 69,417 Crores, reflecting a 33% YoY increase, while the wholesale loan book decreased by 75% YoY to 9,255 Crores, with the total loan book decreasing by 13% YoY (and increasing by 0.21% QoQ). Notably, personal loans and microfinance in the retail loan book reported healthy growth of 63% YoY and 37% YoY, respectively.

Rapid Reduction in Wholesale Book:

LTFH has significantly reduced its wholesale loan book, with the share of wholesale loans decreasing from 49% to 12% in Q2FY24. During this period, the wholesale loan book declined by 75% YoY and 34% QoQ to 9,255 Crores, compared to 14,035 Crores in the previous quarter. Within the wholesale loan book, infrastructure loans decreased to 6,482 Crores, and real estate loans declined to 2,773 Crores over the last three years. As of Q2FY24, the current loan book mix comprises 88% retail and 12% wholesale.

NIMS + Fee & Other Income Jumped 120 bps QoQ

 LTFH experienced a significant increase in other income, growing by 83.1% YoY (and 20.4% QoQ) to reach 313 Crores, leading to an expansion of NIMs and fee & other income margins by 120 bps QoQ to 10.84% in Q2FY24, compared to 9.64% in the previous quarter. Net Interest Margins (NIMs) also expanded by 56 bps QoQ to 8.62%, driven by a 49 bps QoQ increase in yield to 15.23%.

Asset Quality Improved with Stable Provisions & Strong Capital Position (CCRA-25.16%)

In Q2FY24, asset quality showed improvement, with a decline in Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) by 16 bps and 3 bps QoQ, respectively, to 3.05% and 0.67%, compared to 3.55% and 0.88% in Q2FY23. GNPA and NNPA stood at 2,116 Crores and 452 Crores in Q2FY24, compared to 1,850 Crores and 446 Crores in Q2FY23. The provision coverage ratio remained unchanged at 79% on a QoQ basis. LTFH maintained a strong capital adequacy ratio, standing at 25.16% in Q2FY24, which exceeds the RBI guidelines of 15%.

Valuation and Key Ratios:

LTFH’s stock is currently trading at a valuation of 1.58 times its book value, which is 89.4 Rupees per share, at the current market price of 141 Rupees. The company reported robust growth in returns, with Return on Equity (ROE) improving by 109 bps QoQ to 10.81%. Return on Assets (ROA) increased to 2.42%, up by 29 bps QoQ. The Interest Coverage Ratio stood at 1.49x, indicating the company’s solvency.

Consolidated Q2FY24 Results Highlights:

➡️ In Q2FY24, Interest income grew 2.6% YoY (+1.6% QoQ) to 3,168 Cr, on back of strong 38.4% growth in revenue from retail segment, though partly offset by decline in wholesale and other business.

➡️ Interest expenses decline 7.8% YoY (-2.8% QoQ) to 1,325 Cr, reaching net interest income (NII) increased 11.8% YoY (+5.1% QoQ) to 1,844 Cr which led to increase NIMS by 56 bps QoQ to 8.62%

➡️ NIMs + Fee & other income margin expanded 241 bps YoY (+120 bps QoQ) to 10.84%.

➡️ Pre-provision operating profit (PPOP) grew 24.2% YoY (+13.4% QoQ) to 1,193 Cr driven by stable other OPEX at 515 Cr (PQ-519.9 Cr)

➡️ Net profit surged 64.9% YoY (+12% QoQ) to 594 Cr, helped by reduction in provision by 2.2% YoY. Adjusted PAT grew 64.8% YoY.

Conclusion:

In Q2FY24, LTFH demonstrated robust growth in its retail segment, with significant reductions in the wholesale loan book. The company achieved strong net interest margins and fee & other income margins, leading to improved profitability. Asset quality improved, and the company maintained a strong capital position. These positive trends resulted in a substantial increase in net profit. Overall, LTFH’s performance in Q2FY24 reflects its successful transition towards retailization and its commitment to sound financial management.