Analyst Meet / AGM - Analyst Meet

02-May-2019, 06:57
L&T Finance Holdings conducted an analyst meet on 02 May 2019 to discuss the results for the quarter ended March 2019. Dinanth Dubhashi, Managing Director of the company addressed the meet:

Highlights:

• The company has posted top quartile RoE for the first time in FY2019, which is achieved through focus on retailisation, prudent liquidity management, growth in NIMs plus Fee Income, diversification of funding sources and robust asset quality.
• The company has achieved leadership positions across various businesses. In most of the product segment, the products of the company enjoy top 5 positions in the industry in terms of size, while they are number one in terms of profitability.
• The company has further retailised its loan book with retail + housing loan book share rising faster expected to 52% end March 2019.
• The company has continued strong focus on right underwriting, risk management and prudent provisioning.
• The company has recorded consistent improvement in net interest margin, despite interest income reversals for Q4FY2019. The company has posted substantial improvement in NIM+Fees to 6.75% in FY2019 from 5.88% in FY2018. The strong pricing power of the company and prudent interest rate management has enabled the company to pass on rising interest rates. More importantly, the robust fee income has consistently helped in covering operating expenses of the company.
• On the focused products front, the company has maintained strong growth in the rural segment with a growth of 50% and continued gaining share. The home loan segment has posted 51% surge in the disbursements driven by 148% surge in the salaried segment. The IDF book has surged 17% as against 1% decline in the overall wholesale loan book.
• Within the real estate segment, the company is focusing on category A developers in mid and affordable segment. In the infrastructure segment, the company is focusing on renewable and operating road projects with higher sell-down leading to limited book of 9%. Meanwhile, the company is putting heavy emphasis on project monitoring and completion in the real estate and infrastructure.
• The company is de-prioritizing the structured corporate finance and debt capital market segment with disbursements in these segment declining 61% and 35%, respectively. The tightened credit policy post GST rollout has also led to dip in the disbursements to loan against property by 40%.
• The company has exited supply chain finance segment with the sale of Rs 700 crore book to Centrum. The defocused loan book of the company has declined to negligible level below 1%, while the company can write-off the defocused book at any point of time with provision coverage of 75%.
• On asset quality front, the company has consistently reduced bad debt level, along with adequate provisions. The GS3 loan in the rural segment has declined in percentage as well as absolute terms, while the company has continued to maintain healthy asset quality in the home loans segment. The company has built macro-prudential provisions of Rs 350 crore (Rs 260 crore in rural and Rs 90 crore in housing) for unanticipated future event risk, over and above the expected credit losses on GS3 assets and standard asset provisions.
• The company has reduced Rs 1050 crore of legacy stressed assets in the wholesale loan book in FY2019.
• The company has exposure of Rs 1800 crore to 6 Project SPVs of IL&FS. The Resolution Plan submitted by Union of India (at the instance of IL&FS Board) to NCLAT, specifies that these SPVs are capable of servicing loans to secured creditors and there will be priority on payments towards them. As on 31 March 2019, the exposure as secured financial creditor to these SPVs, is in the Stage 1 category and within the standard classification of RBI's Prudential Norms. As per the company, there will be no provision required towards principal repayment. However, as a measure of commercial prudence and taking a conservative view, an amount of Rs 84 Cr towards interest of Q3FY19 and Q4FY19 has been reversed.
• As per its prudent ALM policy, the company has maintained positive liquidity and interest rate gap, in the first-year buckets. The company has raised funds through secured retail NCD issues, aiding in the retailisation of its liabilities. The company raised Rs 1500 crore in Tranche 1 and Rs 1000 crore in Tranche 2. Both tranches received tremendous response and were oversubscribed on day 1 of opening. The company has so far raised Rs 1152 crore, from International Finance Corporation, to further diversify its liability book.

Strategy ahead

• In FY2020 and beyond, the company intend to consistently deliver sustainable top quartile RoE through a strategy of responsible growth, continued retailisation of the loan book, diversification of funding sources, healthy NIMs plus fee income, and enhanced productivity.
• The future growth would be driven by gaining market share, but not at any asset quality risk. The company would also focus on adjacencies (e.g. refinance, loan top-up etc) and cross sale for boosting portfolio growth. The company is planning to launch new product such as consumer, personal, SME loans to support loan growth, while the company is planning to introduce SME Business Loan product.
• On micro loans front, the company would diversify in under penetrated geographies and concentrate on acquisition of new customers rather than increasing exposure to existing ones. The deep database in the rural segment is expected to help in cross sale and right underwriting. On two wheeler loan segment, the company sees enhanced finance penetration as an opportunity. In the IDF, the company aims to grow in core infrastructure sector such as operating projects in renewables and roads.
• The margins are expected to be protected through increased use of data for differential pricing, prudent ALM management, while fee income is proposed be improved through enhanced cross selling of third party products, diversification, leverage strong database of customers, use of strong domain knowledge and market leadership to set up alternate investment fund.
• The company is putting strong focus on improving productivity through use of data analytics, improved turnaround time etc. The company would enhance the use of data and analytics, while continues to invest in digital and analytics.
• On asset quality front, the company would maintain conservative provision coverage ratio on GS3 assets, while building macro prudential provision, for unanticipated future event risks, during growth periods and to be drawn upon during challenging macro-economic events.
• The company would build macro prudential provisions over a period of time subject to a cap of 1.25% of the risk weighted assets.

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