L&T Finance Holdings - Some nice tailwinds!

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📖 About the Company 📖

• L&T Finance Holdings is a NBFC which offers a variety of services & loans in major 3 categories :-

1. Personal Finance :- Consumer loans (1%), Home loans, Loans against property (12%), Micro loans (13%), Two wheeler finance (8%). 
2. Agricultural finance :- Farm equipment financing (12%).
3. Real estate finance :- Real estate loans (14%), Infrastructure finance (38%), Infra debt fund.

💰 High Growth in Q3 Net Profit 💰

• L&T Finance Holdings, which is the financial services division of the construction giant Larsen & Toubro (They hold a 63.5% stake in the company), reported a robust growth in net profit in Q3.

• Year on Year, Net profit grew 43% due to better yields, low tax and a strong growth of loans in the retail segment.

Growth in Q3

Some other key highlights from the company's Q3 earnings report are as follows :-

📈 Retail Loan Book Grows  📈

• The retail loan book grew by a nice 34% Year on Year, mainly supported by Consumer finance, MFI or microfinancing, high traction in 2 Wheeler loans, tractor financing. 

• This retail segment contributes to around 64% of the total loan book, and according to the management, this share of retail in the overall book is expected to reach 90% by the end of 2023-24.

Growth

🚜 Boosting Momentum Across Business Segments 🚜

• The company is currently trying to increase the penetration of their dealers and also increase the number of their customers in the premium segment to promote their farm equipment business.

• L&T Finance Holdings is also looking to diversify into new places/geographies or under-penetrated markets as they want to maintain regular collection efficiency to help the company's microfinance segment. 

• In the 2 Wheeler loans segment, the company's main focus is only towards financing either the existing customers who have a great repayment track record or the high credit-worthy customers.

🏭 Beneficiary of Improving Sector Prospects 🏭

• L&T Finance Holdings is set to benefit from :-

1. Very high infrastructure spending by government of India.
2. Increase in consumer spending.
3. Credit uptake in agricultural and industrial sectors.
4. Low transaction costs. 

• Currently, the rural market is doing well as a result of :-

1. Higher crop prices 
2. A healthy rabi season
3. Strong level of water reservoirs
4. A reasonable demand from exports. 

• Retail had a pretty high share of 49% in the company's loan mix according to the nine months ending December 2022 report.

Infrastructure

🔀 Merger Proposal of Subsidiary Companies 🔀

• There is a merger proposed in which L&T Infra Credit and L&T Mutual fund trustee limited will be merged into L&T Finance resulting in a simple unified company with high efficiency in operation and proper utilization of capital to grow.

📉 Accelerating Wholesale Portfolio Reduction 📉

• The company has set some goals and named them "Lakshya" which they want to meet by 2026. The goals include :-

1. A portfolio which is majorly retail dominated.
2. Return on Assets around 2.8% to 3.0%.
3. Some moderation and optimization in NPAs.
4. Retail asset growth of greater than 25%.

• The company is reduce its wholesale portfolio as fast as possible in which they will accelerate the selling of its wholesale book creating the required and appropriate provisions, which will in turn cover the risks in downside and optimize the future Net Interest Margins.

In conclusion, L&T Finance Holdings observed a pretty solid third quarter, mainly due to the amazing growth in retail loan segment and also supported by the improving sector condition. The company is also taking a lot of steps in the right direction in order to further improve their market share & position by accelerating the reduction of wholesale portfolio, promoting the farm equipment business, and diversifying into less penetrated or new places.