Technical Analysis:
Looking at the chart, L&TFH (CMP:68) has immediate support of around 67-65 zone and sustain below 65, it could fall to 62-61 & 59 area. Only consecutive closing below 59, it may further fall towards 54-50-45-40-30 territory in the worst bear case scenario.
On the upside, sustaining above 67, immediate target may be 72-75-78. Only consecutive closing above 78, L&TFH might target 83-88 & 92-97 in the near term. In the long term, sustaining above 97, it may scale up to 105-110-120-130 under the bull case scenario (FY:16-18).
Technical Trading Levels (Positional):
| SL</>1 | FROM SLR | |||||||||
| L&TFH | CMP | 68 | ||||||||
| T1 | T2 | T3 | T4 | T5 | T6 | T7 | SLR | |||
| Strong > | 67 | 72 | 75-78* | 83 | 88 | 92 | 97* | 105-115 | <65 | |
| Weak < | 65 | 61 | 59* | 54 | 50 | 45 | 40* | 30 | >67 | |
Stock Analysis & some useful inputs:
L&TFH is now concentrating more on retail consumer oriented loan and focusing on financing tractors, two-wheelers, microfnance, home loans & SMEs. As a business strategy, for better NIM and to combat overall industrial economic slowdown, it is gradually shifting from wholesale business (financing commercial equipments & vehicles-CE/CV) towards consumer (retail) finance need. As the economy will stimulate (as expected from H2FY16 onwards), it will expand its wholesale finance as par available & profitable opportunity. Also, the proposed 7-th pay commission might recommend an average of 30-40% salary hike with arrears by Jan'16 and that will also stimulate overall consumer demand (multiple two/four wheelers/home loans/electronic goods etc) from so called middle class Govt. employees. Although such astronomical pay hike may ignite further wage inflation and could also strain Govt's financial discipline, over all this may be good for our economy to stimulate demand (at least for short term).
Its Q1 result is inline/above market estimates mainly due to steady income/stable loan growth along with controlled operating expenses amid increasing digitization. Overall loan was growing by around 21% and disbursements by a healthy 37% due to more demand from 2W, housing, microfinance in retail segments and operational projects in wholesale segment.
Asset quality deteriorated during Q1 to some extent on account of higher delinquencies in farm portfolio (may be due to unseasonal rains to some areas). The company also shifted the NPA recognition system from earlier 180 days to 150 days and that is also responsible for sequentially higher gross NPA to 3.05% from 2.25%. Also tractor finance is highly susceptible to NPA & may pose some headwinds for the company in a drought year.
Looking ahead, the management is somehow cautious in its guidance. Although it sees improved sentiments & confidence among borrowers amid various steps initiated by the Govt, the overall economic or operating environment is still sluggish and due to lack of robust order flows and stretched balance sheet, certain restructured assets is showing continuous levels of stress. But good monsoon & its distribution this time (at least better than expected) may help the NBFC space in general & L&TFH might be one of them.
L&TFH came to the lime light last year, when there was talk of granting banking licensees to various corporate groups and L&T was one of them, but it lost out as the whole phenomenon was proved to be an non-event later.
But in future, we could see significant consolidations among various PSU banks & smaller private ones due to huge unsustainable NPAs and significantly higher regulatory requirement of capital (as par Basel-III norms), So, it might not be feasible to have small sized banks amid starved of working capital and consolidations or new full banking license will be the game changer in the banking space apart from growth opportunity in an organic or inorganic way. RBI may also consider to open the tap of new banking license in the days ahead & L&TFH, being a well respected group, having not so much controversy, might be a well deserved candidate as well.
Being a NBFC of the L&T group, having considerable financial muscle, robust professional management and a trusted brand & reputations, it might emerge a considerable strong player in the financing space, specially in urban & rural India in the days ahead.
L&T owns around 73% of L&TFH. To meet the regulatory requirement and also for requirement of additional capital, its actively scouting for stake sale and as par various reports, a US based PE fund (Warburg Pincus) is in active talks to take 25% of L&TFH (although the management is vehemently denied it as usual as "pure speculation" because of various regulatory compliance).
Techno Funda Valuation As Par BG Metrics (Modified):
Current median Valuation may be around 88 and projected fair values might be around 97-105-115 (FY:16-18) in the current market parameters.
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| L&TFH | 4.42 | 38.83 | 24.12 | 84.52 | 86.66 | 85.59 | 67 | 70.45 |
| L&TFH | 5.22 | 40.8 | 24.12 | 91.85 | 94.18 | 93.01 | 67 | 70.45 |
| L&TFH | 6.4 | 42.9 | 24.12 | 101.70 | 104.28 | 102.99 | 67 | 70.45 |
| L&TFH | 7.95 | 45.15 | 24.12 | 113.35 | 116.23 | 114.79 | 67 | 70.45 |
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