L&T Finance Q1 Result Review - Accelerated Transformation Into A Retail Franchise: Motilal Oswal
Earnings in line; retail RoA/RoE at 3.1%/15.7% in Q1 FY24.
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Motilal Oswal Report
L&T Finance Holdings Ltd. reported Q1 FY24 profit after tax of Rs 5.3 billion (inline). Pre-provision operating profit grew ~7% YoY to Rs 12.4 billion (in line), while credit costs of ~Rs 5.2 billion translated into annualised credit costs of 2.6% (previous quarter: 2.5% and previous year: 3.6%).
Retail profit after tax at ~Rs 5.3 billion surged 176% YoY in Q1 FY24. Reported retail return on asset/ return on equity stood at ~3.1%/~15.7% during the quarter.
Mr. Sudipta Roy (Chief Operating Officer) would assume the role of Managing Director and Chief Executive Officer effective January 2024, while the current MD and CEO – Mr. Dinanath Dubhashi – has opted for superannuation. He will remain with the company until April 2024 to ensure a seamless leadership transition.
We expect that the retail mix will improve to ~95% by March 2024 (from 82% as of June 2023).
Considering the accelerated rundown in the wholesale book, we model consolidated loan growth of 3%/22% in FY24/FY25E.
We estimate a profit after tax compound annual growth rate of 27% over FY23-FY25, with consolidated RoA/RoE of 2.3%/~11.0% in FY25.
A strong liability franchise, a well-capitalised balance sheet and a keen intent to further accelerate the sell-down of the wholesale book will enable L&T Finance to achieve its targets articulated under Lakshya 2026 much in advance.
We have raised our FY24E/FY25E profit after tax by 7%/5% to factor in higher fee income and margin expansion and now model a 50% dividend payout in FY24E.
L&T Finance is set to transform itself into a retail franchise, which would lead to profitability improvement and RoA expansion. Reiterate 'Buy' with a target price of Rs 160 (premised on 1.6 times FY25E consolidated book value per share).
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