Buy LT Finance Holdings; target of Rs 235: JM Financial
JM Financial’s research report on L&T Finance Holdings
Over the past month, LTFH ’s stock price has corrected by 23% and we believe the CMP provides an attractive entry point due to : i) Improving RoE trend s – profitability over the last 6 quarters has improved with reported ROE improving from 9.7% in to 1 5 . 2 % despite the company providing for voluntary provisioning of INR 8.9bn and accelerated provisioning of INR 5.3bn ; ii) While PSU banks ’ recap would increase competitive intensity in infrastructure/LAP , LTFH would benefit from the increase in down – selling opportunities ; and iii) The company has hired senior staff from Bajaj Finance and Piramal Finance for its credit analytics and housing team.
We expect strong earnings (37% CAGR over FY17 – 20E) and expect RoA/RoE to improve to 2.1%/21%, respectively, in FY20E vs. 1.35%/12% in FY17. We value LTFH at 3.4x Mar’20, a implying Mar’19 TP of INR 235.
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