L&T Finance Holding Ltd’s NII surged by 14.3% YoY to 1,743 Cr
Company Overview:
As of Q1FY24, L&T Finance Holding (LTFH) continues to establish its position as a prominent Non-Banking Financial Company (NBFC) with a robust focus on both urban and rural financing needs. The company boasts a diverse portfolio of financial products and services, catering to a wide spectrum of customers, including those underserved, across various segments. LTFH’s comprehensive portfolio encompasses key segments such as Farm Equipment Finance, Two-Wheeler Finance, Micro Loans, Consumer Loans, Home Loans, Loans Against Property (LAP), Real Estate Finance, and Infrastructure Finance. Additionally, the company has ventured into innovative financial offerings, including the Infrastructure Debt Fund, further bolstering its diverse offerings.
Strategic Shift to Retail Focus:
LTFH’s strategic approach to transition from a wholesale-dominated portfolio to a retail-oriented one has yielded notable results. Over the past four quarters, there has been a remarkable increase in the proportion of retail loans, surging from 51% to an impressive 75%, with an even more significant achievement of approximately 82% by June 2023. Simultaneously, the wholesale loan book has seen a reduction from 49% to approximately 18%, showcasing a remarkable shift in the lending mix.
Strong Distribution Network:
LTFH’s expansive distribution network is a testament to its market reach and penetration. With over 2,500 dealers in the farm equipment segment and more than 6500 tie-ups in the two-wheeler segment, the company’s presence is felt across 21 states and a union territory. This robust network, combined with a customer database of 2.1 crores, positions LTFH as a reliable financial partner across diverse regions.
Portfolio Diversity:
LTFH’s portfolio is characterized by its diverse loan segments. As of FY23, the portfolio distribution comprised Micro Loans (13%), Farm Equipment (12%), Two-Wheeler (8%), Home Loans/LAP (12%), and Consumer Loans (1%), with the remaining 55% dedicated to wholesale segments. The wholesale segment includes Real Estate Finance (14%), Infrastructure Finance (38%), and a defocused book (3%).
Q1FY24 Results Update: Consolidated
The Q1FY24 consolidated earnings reflect LTFH’s continued growth trajectory. Interest income exhibited a 5.8% YoY growth, amounting to INR 3,116 Cr, while interest expenses demonstrated a decrease of 3.5% YoY, totaling INR 1,364 Cr. This led to a substantial increase in Net Interest Income (NII), which surged by 14.3% YoY, reaching INR 1,743 Cr.
The strategic retail focus was evident in the financials, with the retail segment’s Profit After Tax (PAT) surging by an impressive 176.2% YoY to INR 533 Cr. This growth was fueled by a steady retail Net Interest Margin (NIM) of 11.7%, an increase of 10bps YoY. The reduction in credit costs by 220bps YoY, bringing it down to 2.8%, also significantly contributed to the retail PAT growth. The consolidated Return on Equity (RoE) experienced a remarkable improvement of 450bps YoY, standing at 9.7%. The retail RoE, an indicator of retail segment profitability, saw an even more remarkable increase of 680bps YoY, reaching 15.7%.
Asset quality demonstrated a notable enhancement, with Gross Non-Performing Asset (GNPA) and Net Non-Performing Asset (NNPA) ratios declining to 4.0% and 1.2%, respectively, from their Q4FY23 levels. The provision coverage ratio remained robust at 71.0%, and the capital adequacy ratio stood at an impressive 25.8%, well above the RBI norms of 15%. In line with these impressive financials, the Earnings Per Share (EPS) for the quarter surged to INR 2.1, showcasing a substantial increase of 135% YoY and 5.9% QoQ.
Conclusions:
In summary, L&T Finance Holding’s Q1FY24 performance underscores its successful transition to a predominantly retail-focused lending model. The company’s robust financials, enhanced asset quality, and strategic approach position it well for sustained growth and market leadership in the NBFC sector.
