L&T Finance Holdings (LTFH) will raise Rs 700 crore from Bain Capital through a combination of preferential equity and warrant allotment; this will aggregate to 5.2% of its post-issuance capital. This capital will support medium-term growth targets of its group companies or may be used to redeem existing preference shares.
We tweak estimates to factor in the infusion. LTFH will issue equity shares of Rs 235 crore for 1.75% post-issuance stake in the company.
Additionally, Bain Capital will subscribe to 63 million warrants aggregating to Rs 472 crore. Both issuances will be made at Rs 74/share (1.5X PBR FY2017E). Bain Capital has also purchased stake in LTFH from the secondary markets; Bain Capital will hence own 10% in the company.
We value LTFH on a SoTP basis. We value LTF and LTIF at 1.8X and 1.6X PBR FY2017E, respectively. To factor in capital issuance and preference shares at the holding company, we factor in the same separately in our SoTP. At our target price, LTFH will trade at 1.7X FY2017E book for medium-term RoE of 15-17%.
We expect its growth trajectory (20% loan book CAGR between FY15 and FY18E) to be superior to most peers due to its focus on multiple growth segments; we expect the company to deliver 14% EPS CAGR during the period.
We tweak estimates to factor in equity issuance and warrant conversion. Since the allocation of funds across group companies is not clear, we increase cash/reduce borrowings at the holding company.