Stock corner: Retain ‘buy’ on L&T Finance Holdings, target price Rs 130

Published: November 29, 2019 1:16:25 AM

The government has a stated objective of achieving an ambitious target of 175GW of renewable power capacity by 2022e and 40% of power capacity coming from clean sources by 2030e, as against current capacity of 80GW.

L&T Finance Holdings, NPL, NBFC, NBFC sector, L&T Infra Finance, renewables financing spaceManagement remains optimistic on the long-term growth potential the space presents and is looking to maintain / gain market share as the competition from other NBFCs and private banks has declined.

By HSBC Global Research

We hosted L&T Finance Holdings to meet investors to discuss the opportunities and challenges in the renewables financing space. LTFH enjoys a leadership position in this segment with outstanding loans of a tad lower than $3bn and nil NPLs. Management remains optimistic on the long-term growth potential the space presents and is looking to maintain / gain market share as the competition from other NBFCs and private banks has declined.

Huge growth opportunity: The government has a stated objective of achieving an ambitious target of 175GW of renewable power capacity by 2022e and 40% of power capacity coming from clean sources by 2030e, as against current capacity of 80GW. This appears a tall task and more so given the ongoing liquidity situation for NBFCs which has created funding constraints for sponsors and recent actions by state governments like Andhra Pradesh, which have dented investor confidence. However, we believe this opens up opportunity for dominant players like LTFH, which are comfortably placed on the liquidity front and have the technical know-how to underwrite such projects effectively.

Strong track record and competitive advantage: In the current economic scenario, LTFH is in an envious position given the synergies it draws from its parent L&T for technical and industry know-how, strong liquidity position despite inadequate funding support to the NBFC sector — it has access to long-term funding from various domestic and foreign institutions, L&T Infra Finance has had nil non-performing loans in its renewables portfolio since 2012, which is a result of its strong business understanding and its ability to mitigate risks, which allows it the potential to gain market share in the current environment.

Retain buy: We believe the management has maintained a fine balance between growth and the asset quality. The company continues to grow at a steady clip in the retail and renewables spaces, which are relatively more profitable and have stable asset quality. We retain our ‘buy’ rating with an unchanged target price of Rs 130.

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