Capitaline

Analyst Meet / AGM 20-Jul-20

Conference Call

L&T Finance Holdings

Expects Q2 to be better than Q1, focus continues on fortifying balance sheet

L&T Finance on Holdings conducted conference call on 17 July 2020 to discuss in its financial results for the quarter ended June 2020. Dinanath Dubhashi, CEO, MD & Whole-Time Director of the company addressed the call: Highlights: The quarter ended June 2020 would have been first of its kind with a pandemic, locust attack, cyclones, maybe possibility of a war and anybody would like to forget it quickly. However, the company learned to fight against adverse circumstances and every dark cloud has a silver lining. The biggest silver lining is emerging from the rural sector. The rabi crop was bumper and has got good prices. Monsoon has progressed reasonably well. Reservoir levels are quite healthy. Kharif sowing is doing well. The disbursements of the company declined 76% in Q1FY2021. NIMs and fees are down. Provisions have increased. The company has been focusing on fortifying balance sheet for dealing with the uncertain conditions in the coming months. Majority of the farm and micro loan branches opened up in late May itself and 95% branches of farm and micro loan are already open. Opening up of home loans and 2-wheeler branches have been relatively slow, as many of them fall in urban, semi urban areas, but even that have been reaching now good levels. About 99% of on-field workforce started operating in June and raises hope that Q2 will be even better performance than Q1. The dealerships of tractors have now opened almost 100%. On disbursements front, there is excellent pickup in rural disbursements in June and exceeded initial expectations. The company has financed over 10000 tractors in June 2020 recording 19% growth over June 2019. In Micro Loans, the company has restarted disbursements at the very fag end of June, and these will contribute substantially to disbursements in Q2. The company believes that its well placed to further gain in the coming quarters on the back of strong positioning in the rural market as that part of the economy picks up faster. In infra and real estate business, the company will look at how risk parameters develop in these markets. The company expects Q2 to be better than Q1 in 2-wheelers and the disbursements will only keep looking up going ahead. The number of retail customers under moratorium reduced from 79% in March to 44% in June 2020. In value terms its 34% in June 2020 while about 4% clients have paid part installments. Moreover, in the first 15 days of July, 30% of the retail customers who were in moratorium in June have already paid their installments. In infra and real estate businesses, about 40% of the clients are under moratorium, but many of them are operating projects and the company is completely not worried till the end of financial year. The total debtors have fallen during the quarter by about Rs 1300 crore. GS3 has fallen by about Rs 100 crore. The total collections for the quarter were only 45% of last year's level, this has improved to about 70% of last year's levels in June 2020, as collections were almost nil in April 20. This external collection trend has further improved in July 2020. The number of customers paying in April was 1300 only per day, which has improved to 1.2 lakhs in June and is likely to be much higher in July 2020 to more than 2 lakhs. The operational green projects have now been confirmed Must Run status. Most DISCOMs now have remitted their due to the government scheme of helping their liquidity, including Andhra Pradesh, which has now paid all its due up to March. Toll levels of operational road projects are up to 80% of pre-COVID levels in June from near 0 towards the end of March. Even in real estate, the much beaten down sector, 86% of under construction projects have resumed activity in June with large number of them with full manpower. While sales remains subdued, they have reached 33% of pre-COVID levels by June. The PCR has also increased to 69% from 59% last quarter. The company may not need this as the company goes ahead, but it is prudent at this point of time. The company sold wealth business and the profit from that at Rs 225 crore was used entirely to provide for one of the old defocused asset 100% relating to the large conglomerate. The company believes it will end up reversing some in the next 2 quarters, while its expecting some good news in terms of takeover bids etc. Net Stage 3 is at 1.7%, the lowest the company has ever reached. NS3 has reached an industry best level of 0.26% in the farm segment. The company has created additional COVID-19 provision of Rs 278 crore in addition to Rs 209 crore in FY2020 that takes total to Rs 487 crore at the rate of 10% in line with RBI guideline. In addition to that, the company has further added to macro-prudential provision of Rs 300 crore for any possible deterioration in the environment and specifically, any change in the borrower's repayment behavior once the moratorium gets over. Thus, now the company carry a total of Rs 1244 crore of additional provisions for standard assets. Further, the company has normal standard asset provisions of Rs 400 crore The company continued the practice of maintaining positive liquidity in all buckets till 1 year, even after taking into account the impact of moratorium. As on June 30 the company maintained a liquidity buffer of more than Rs 16500 crore, out of which Rs 9000 crore were pure liquid assets, cash, bank balance, liquid mutual funds held on the balance sheet. Normally, the company carries around Rs 3500-4000 crore cash on balance sheet anyway given size of Rs 1 lakh crore. These extra Rs 5000 crore, Rs 5500 crore that the company carried had an incremental negative carry of Rs 84 crore in Q1FY2021. The company believes that this negative carry will start reducing and trending back to normal as the company goes ahead. The company has raised long-term resources of more than Rs 3500 crore in Q1FY2021. The company received the first tranche of US$ 50 million of a total $100 million ECB from AIIB, which is AIIB's first loan to an NBFC in India. Cost of funds reduced yoy, but rose 6 bps qoq as the company moved more and more long term. The costs of fund should normally trend same or slightly start coming downwards. The large majority of the quarter was lost in lockdown and restricted efforts to deliver the best results. In mutual fund, the overall AUM were down over last quarter, while the company has shown strong growth in equity AUMs as well as the high-quality debt AUMs. And lost in the credit funds segment after the development in the mutual fund market, even though the company didn't have any of doubtful assets in its credit fund,. Book largely remained flat at about Rs 99000 crore, mainly to the extent of reduction of disbursements and also moratorium stopping very fast book rundown. the focused book grew 4% Y-o-Y and defocused book actually reduced by 45% Y-o-Y. Fee income also took a hit from 1.17% in Q4FY2020 to 0.77% in Q1FY2021 as new disbursements were low. As disbursements pick up, the company hopes the fee income to pick up. The operating cost is down by about Rs 100 crore due to decline in variable costs proportionate to business activity, which may rise hopefully in the future as business activity goes up. The real benefit will come out of the fixed cost reduction measures that the company have undertaken, which will bear results even more in the coming quarter. Overall, the PCR on defocused book is now at 70%. The capital adequacy stands at 21% and there is no immediate need for capital. However the company would need capital, like any other NBFC, to fortifying at times like this and which is always prudent. Discussions are on right now, what will be the right way, time, method of raising that capital.

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