SHREEPAD S AUTE
Nowadays, any association with defaulting companies is taken seriously by investors. Exposure to step-down subsidiaries of IL&FS group and SuperTech, thus, pulled down L&T Finance Holdings’ (LTFH) stock by 7.6 per cent on Thursday, even as the company posted strong September quarter (Q2) numbers after market hours a day earlier.
For Q2, LTFH clocked 24 per cent year-on-year (YoY) growth in its loan book to ~912 billion and net profit surged 66 per cent to ~5.6 billion. However, its ~18-billion exposure to special-purpose vehicles (SPV) of IL&FS Transportation Networks and ~8 billion to SuperTech, was more disappointing for investors. The worry is not without reason. With these loans accounting for about 3 per cent of total advances, it will impact LTFH in case of a default.
The management, however, does not see any default. “Cash flows from projects of SPVs of ITNL are sufficient to take care of debt repayments. We have full control of the escrow account, debt service and other reserves. There is also a fall-back to government guarantees and termination payments for the entire outstanding. Thus, we are confident of entire recovery,” says Dinanath Dubhashi, MD and CEO of LTFH.
The exposure to SuperTech is also secured, and the firm expects credit cost to remain at current levels. An added comfort, though marginal, is that LTFH has made a ~2 billion extra provision for any unexpected event.
On the liquidity front, there seems little to worry about. The asset-liability management (ALM) figures indicate LTFH has more assets maturating in the short term than its debt obligations. LTFH has also maintained a liquidity cushion of ~103 billion, and has a ~20 billion back up from parent L&T. Therefore, any liquidity issue is unlikely to hinder its targeted loan book growth of 20-22 per cent, say analysts.
With more assets (than liabilities) getting re-priced over the next one year, profit margins should remain firm. Comfort also stems from increased focus on the moreprofitable rural loans, besides home loans. The share of rural loans rose to 24 per cent in Q2, from 17 per cent last fiscal.
Analysts thus believe that negatives have been priced in. However, given the weak sentiment towards NBFCs, waiting for clouds to clear could be a better option.