L&T Finance Holdings rallied 19% in the last week of July to Rs.185.45 after the company reported a healthy 60.30% (year-on-year) growth in consolidated net profit at Rs.5.39 billion driven by strong AUM growth and flat credit costs in June 2018 quarter. The rural finance business grew 76.2% and two-wheeler loans rose 68.0%, while farm equipment business grew at 32.5%. The housing finance business also registered strong growth of 48.1%.
But post the IL&FS default, L&T Finance Holdings has also been hit along with other NBFCs. The stock has shed more than 17% since September 21 when concerns over lack of liquidity in the debt market began swirling. And from its high of Rs.185.45 post the Q1FY19 result, the stock is down 32.57%.
As the stock continues to take a beating, Harsh Mariwala, director at L&T Finance Holdings and founder of Marico, acquired 130,000 shares worth Rs.18 million on September 21. Mariwala’s stake has increased from 0.01% to 0.02% post the transaction. Along with Mariwala, director Shailesh Haribhakti also bought 300,000 shares worth Rs.45.79 million around the same time. Before the latest acquisition, Mariwala and Haribhakti had bought 400,000 shares and 188,243 shares in FY17 from the open market.
However, in FY19 so far, other directors and senior management personnel have sold shares worth Rs.243 million. In tune, promoter stake has also reduced from 64.23% in June 2017 to 64.01% in June 2018. FIIs have also cut their stake from 10.96% to 9.22% in the same period. Citigroup Global Markets Mauritius, which was holding 5.51% in June 2017 quarter has sold down to 3.17% in December 2017 and as of June 2018 holds 2.90%.
Mutual fund holding did move higher from 3.51% in June 2017 to 5.23% in March 2018 but they cut back to 4.59% in Q1FY19. Aditya Birla Sun Life MF was one of the prime movers and held 3.0% in March 2018 and now holds 2.79%. Among others, Invesco Mutual Fund, DSP MF, Edelweiss MF increased their stake from 0.21%, 0.02% and 0.10% in June 2017 to 0.42%, 0.25% and 0.15% respectively.
Despite the steep fall in stock price and concerns over liquidity, analysts are bullish on L&T Finance Holdings. Kotak Institutional Equities believes that tailwinds in rural business and cleaner book post write-offs in wholesale book will drive RoE at 18-19% over the medium term. According to the analysts, while the company’s exposure to NCDs is high at 45%; but, its parentage provides comfort to debt investors. Citi Securities also prefers L&T Finance. With an improving returns profile, focused growth trajectory and lower costs, the brokerage believes that the company is scripting a turnaround story. “We find the stock attractive at 2.5x FY20E P/Adj B for a likely RoE of 20%,” says the report.