LTFH 1Q earnings at Rs1.45B, up 20% Y/Y, were below expectations, with
high credit costs (+57% Y/Y) offsetting strong NII growth (33% Y/Y). AUM
growth for the Q was strong at 31% Y /Y, aided by Infra book and rural
financing. Disbursements continue to remain sluggish. Asset quality witnessed
a deterioration in the Jun-Q. Overall GNPA levels increased to 2.54% (vs.
2.03% in Q4) partly due to seasonality in retail business; while there is also
increased stress in CV/CE segment and corporate/infra assets. Credit costs
were up by 50-90bps Y/Y across infra/retail biz and are expected to remain
elevated near term given the overall macro. Further, recent liquidity
tightening measures by RBI pose a downside risk to margins. Maintain N.
Retail & Corp Finance – NIM improvement offset by higher credit
costs and opex increase: ROE for the business came down to 10.3% (vs.
14.5% in Q4). This as improvement in NIMs (6.2%, +70bps Y/Y) was
offset by higher credit costs and increased operating costs (due to Family
Credit addition). Credit costs increased by 50bps Y/Y to 1.7% levels due to
stress in corporate and CE segment. Company expects credit costs to
improve from 2H, which should take the ROAs back to target 2%+ levels.
Overall AUM & disbursement growth was healthy at 24% Y/Y / 26% Y/Y,
respectively. Growth in LT Retail has primarily been driven by rural
(tractors & cars) and capital markets products, while MFI has also started to
see good growth albeit off a small base. Construction equipment and
transport equipment finance continue to witness de-growth.
Infrastructure Finance – Improvement contingent upon overall macro:
ROE for the Q at 13.1% came in lower than target ROEs of 16% levels.
This given higher credit costs as the company made some voluntary
provisions due to increased stress & delayed payments in some sectors.
Credit costs are expected to stay elevated near term given uncertain macro.
Fee income was also lower in 1Q due to slow momentum in syndication
deals. AUM growth stood at healthy 36% Y/Y even though disbursements
were sluggish (down 47% Q/Q). Longer tenor loans (lower repayments) has
helped growth in infra business. Further, management expects IDF to get
operational in 1H.
Investment management – Close to breaking even: AUM growth and
better cost control has helped the company curtail margin loss to 10bps of
AUM in Jun-Q (vs. 90bps in FY13). AAUM growth of 23% Y/Y is
encouraging although aided by lower revenue fixed income products.
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high credit costs (+57% Y/Y) offsetting strong NII growth (33% Y/Y). AUM
growth for the Q was strong at 31% Y /Y, aided by Infra book and rural
financing. Disbursements continue to remain sluggish. Asset quality witnessed
a deterioration in the Jun-Q. Overall GNPA levels increased to 2.54% (vs.
2.03% in Q4) partly due to seasonality in retail business; while there is also
increased stress in CV/CE segment and corporate/infra assets. Credit costs
were up by 50-90bps Y/Y across infra/retail biz and are expected to remain
elevated near term given the overall macro. Further, recent liquidity
tightening measures by RBI pose a downside risk to margins. Maintain N.
Retail & Corp Finance – NIM improvement offset by higher credit
costs and opex increase: ROE for the business came down to 10.3% (vs.
14.5% in Q4). This as improvement in NIMs (6.2%, +70bps Y/Y) was
offset by higher credit costs and increased operating costs (due to Family
Credit addition). Credit costs increased by 50bps Y/Y to 1.7% levels due to
stress in corporate and CE segment. Company expects credit costs to
improve from 2H, which should take the ROAs back to target 2%+ levels.
Overall AUM & disbursement growth was healthy at 24% Y/Y / 26% Y/Y,
respectively. Growth in LT Retail has primarily been driven by rural
(tractors & cars) and capital markets products, while MFI has also started to
see good growth albeit off a small base. Construction equipment and
transport equipment finance continue to witness de-growth.
Infrastructure Finance – Improvement contingent upon overall macro:
ROE for the Q at 13.1% came in lower than target ROEs of 16% levels.
This given higher credit costs as the company made some voluntary
provisions due to increased stress & delayed payments in some sectors.
Credit costs are expected to stay elevated near term given uncertain macro.
Fee income was also lower in 1Q due to slow momentum in syndication
deals. AUM growth stood at healthy 36% Y/Y even though disbursements
were sluggish (down 47% Q/Q). Longer tenor loans (lower repayments) has
helped growth in infra business. Further, management expects IDF to get
operational in 1H.
Investment management – Close to breaking even: AUM growth and
better cost control has helped the company curtail margin loss to 10bps of
AUM in Jun-Q (vs. 90bps in FY13). AAUM growth of 23% Y/Y is
encouraging although aided by lower revenue fixed income products.
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