L&T Finance Holdings (LTFH) is a quintessential turnaround story, in our view. From a company with 20+ product lines and sub-standard return ratios, it is gradually transforming itself to a focused financier with eight product lines across three verticals, with a target to achieve 18-20% RoE by FY20 (~12% in FY17). The company has identified three segments to focus on — wholesale, housing and rural finance, which comprise 62%, 19% and 15% of the total loan book, respectively. While the rural and housing segments have already achieved 20%+ RoE, going forward, wholesale financing, RoE- FY17: 11%, FY20E: 16%, will be the key driver of profitability improvement. Strong growth and a decline in expense ratio and credit costs should elevate RoA/RoE from 1.5%/12.4% in FY17 to 2.3%/19.2% in FY20. While the stock has re-rated well over the past year on account of strong execution by management, we expect re-rating to continue. We thus initiate coverage on LTHF with a ‘buy’ rating and a target price of Rs 180, 3.0x FY19E BVPS. After the appointment of Mr Dubhashi as MD & CEO in July 2016, LTFH’s primary goal has been to generate top-quartile RoE for its shareholders. In order to achieve this, LTFH has identified three key segments , rural, housing and wholesale finance, to focus on, and is running-down the de-focused businesses. It has focused on cost-cutting measures, and is also investing in technology in a big way. While credit costs on the wholesale finance business were elevated over the past few years due to legacy asset quality issues, they are expected to moderate going forward due to better underwriting post 2012. We believe LTFH is on track to achieve 35% PAT CAGR over FY17-20, with RoE of 19% by FY20. Wholesale finance has traditionally been the key business for LTFH. The loan book stands at Rs 414b, with the product suite comprising infrastructure finance, thermal, renewables and operating roads, structured finance and supply chain finance. LTFH is the second largest renewable energy financier in the country, and has consolidated its position led by its quick and skillful project appraisal skills.