L&T Finance: Wholesale lending drive growth

Signs of a clear recovery in L&T Finance Holdings’ wholesale business were the key take away from the firm's March 2016 quarter (Q4’FY16) results. Green shoots of its wholesale business getting back on track was visible in the December 2015 quarter. With this segment posting a 29 per cent growth in Q4’FY16 disbursements and wholesale advances in FY16 increasing 29 per cent year-on-year (y-o-y), analysts are once again confident of L&T Finance’s wholesale loans portfolio.

From being largely concentrated on project finance, L&T Finance has re-jigged its business in favour of renewable energy and roads sectors. Renewable power now accounts for 33 per cent of total wholesale advances (27 per cent in FY15), while the share of roads is maintained at 22 per cent. These two segments have relatively less gestation period with relatively high cash-flow visibility and less risk profile. With these transitional measures boding well, Nitin Kumar of Prabhudas Lilladher says the management of L&T Finance is taking steps to keep a check on asset quality issues. “However, with the overall economic situation remaining weak, concerns will linger."

Going forward, Kumar points out the flip side of focusing on these segments. “Yields tend to be low in these products and, hence, return on equity (RoE) may languish and may increasingly become a function of credit cost." The RoE of L&T Finance in FY16 stands at 11.68 per cent, compared to 10-11 per cent in previous two financial years.

On the retail front, segments such as housing finance, microfinance and two-wheeler lending posted 16 per cent y-o-y increase in disbursements versus 20-25 per cent in recent quarters; retail advances for FY16 grew 17 per cent.

Overall, the quarter gone by was positive with net interest income at Rs 784 crore, expanding 19 per cent y-o-y, and net profit at Rs 227 crore registering a 34 per cent growth despite net interest margin at 5.58 per cent slipping 14 basis points, y-o-y.

Gross non-performing asset (NPA) ratio, maintained at 3.05 per cent in Q4’FY16, appears a tad elevated due to transitioning to tighter NPA recognition norms (from 180 to 150 days per dues).

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