Increasing number of borrowers are moving out of moratorium- L&T Finance Holdings

Update on the Indian Equity Market:

On Monday, Nifty closed 1.1% higherat 11,022. Within NIFTY50,BRITANNIA (+5.1%), WIPRO (+4.4%), and INFY (+4.4%) were the top gainers, while SUNPHARMA(-3.9%), CIPLA (-2.2%) andZEEL (-1.7%) were the top losers. Among the sectoral indices, IT (+2.6%), FIN SERVICE (+1.6%), and BANK(+1.6%) gained the most.  PHARMA (-1.6%) was the only sector to close in red.

Increasing number of borrowers are moving out of moratorium- L&T Finance Holdings

Excerpts of an interview with Mr. Dinanath Dubhashi, MD&CEO, L&T Finance Holdings Ltd (L&TFH)published on Economic Times website dated17^thJuly2020:

• In 1QFY21, entire Rs 2,250 mn of exceptional gains have been put towards one-time provisions for COVID-19 impact.
• In 1QFY21, the three months- April, May and June have been 3 very distinct months. Moving from lockdown to unlock, there was an uptick from April to May to June. The uptick has been very good in rural areas and noticeable everywhere else also. That is reason for being optimistic.
• In terms of sectors showing revival, tractor is one industry where there is actually positive growth in the month of June 2020 versus June 2019. All disbursements to tractors have grown by 19% YoY in June 2020. The quarterly numbers are negative because April was zero but June has shown the first uptick.
• There is no concrete answer on how NPAs will be but there are a few noticeable trends in terms of moratorium. For micro loans, loans under moratorium in June have reduced to 48% from 100% in April and May 100%. In the same period, for 2-wheelers, loans under moratorium in June have gone down to 33% from 58-60%. In April, the overall portfolio under moratorium was 75%, it has reduced to 18% in June 2020. Substantial number of accounts under moratorium in June have already paid off in July. So an increasing number of people are paying.
• L&TFH is holding Rs 90 bn of excess liquidity vs normal levels of around Rs 35-40 bn. As a result of this excess cash, there was a negative carry of Rs 840 mn in 1QFY21. This resulted in NIMs being lower in 1QFY21.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of L&TFHwas ₹ 62.8/- as of 20-July-2020. It traded at 0.8x / 0.7x the consensus BVPS estimate of ₹ 77.3/ 89.0 for FY21E/ FY22E respectively.
• Consensus target price of ₹ 72.3/- implies a PE multiple of 0.8x on FY22E BVPS of ₹ 89.0/-.

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