• RoE of 18.45% for Q1FY19
• PAT of Rs. 538 cr. for
Q1FY19 up 71% from Rs. 314 cr. for Q1FY18
The Board of Directors of
L&T Finance Holdings Ltd. (LTFH), at its meeting held today, approved the
unaudited financial results for quarter ended 30th June 2018 (Q1FY19).
In line with direction from Ministry of Corporate
Affairs, LTFH has adopted Indian Accounting Standards (IND AS) with effect from
1st April 2018. Results
of Q1FY19 are prepared and reported in compliance with IND AS requirements.
Additionally, for the same quarter of previous year (Q1FY18), figures have been
recast to fit IND AS requirements.
Some
key changes due to adoption of IND AS for LTFH are:
1. Expected Credit Losses
(ECL): ECL methodology
prescribed in IND AS is based on the principle of providing for
expected future losses, rather than incurred losses, which was followed under
the previous accounting standard. Since required provisions are assessed using
statistical modelling, ECL methodology facilitates granular analysis of
portfolio, thereby translating true risk of a portfolio into provisions.
Under
the previous accounting standard, an asset was classified as either standard
(Not an NPA) or sub-standard (NPA). Under the new accounting standard, assets
are classified as Performing Assets (Stage 1), Underperforming Assets (Stage 2)
or Non-Performing Assets (Stage 3). In accordance with highest standard of
transparency and governance, LTFH has reported its Stage 3 assets to include
NPAs (above 90 DPD), Infra assets where regulatory forbearance was available
(SDR, S4A, 5:25, etc.) and other standard assets with incipient stress.
In
its Infra portfolio, LTFH has taken the entire Expected Credit Loss on its
legacy stressed portfolio. LTFH’s legacy Infra stressed portfolio now carries
provisions of ~Rs. 3,000 cr. against total portfolio of ~Rs. 5,000 cr. Of the
Rs. 3,000 cr., LTFH was already carrying nearly Rs. 1,200 cr. of provisions as
on 31st March 2018 under
the previous accounting standard. The remaining Rs. 1,800 cr. have been
adjusted against opening reserves while transitioning to IND AS.
LTFH was taking
accelerated provisions in its Infra stressed assets portfolio over last two
years. The provisioning requirement on this portfolio is now complete.
In LTFH’s retail
portfolios, i.e., Rural and Housing, requirement of provisions have been
assessed by statistically modelling past performance of its portfolio.
2. Preference Shares: Under the previous
accounting standard, Preference Shares were included in networth
and dividend paid on these shares were appropriated from profits. Under IND AS,
Preference Shares are classified as financial liabilities and dividend paid is
accounted as finance cost. Even under earlier accounting standard, LTFH was
reporting Return on Equity (RoE) after excluding Preference Shares and
dividend. Hence there is no impact on RoE of LTFH due to the new standard.
3. Fair Value of Investments
and ESOPs: All investments have been
revalued to their fair value in opening balance sheet and any
further change in fair value is taken through P&L statement. Fair Market
Value of ESOPs allotted to employees are calculated using Black Scholes method
and taken in P&L, resulting in a small increase in manpower cost.
4. Amortization of Fees: In line with requirement
of IND AS, LTFH is amortizing its processing fees at Effective
Interest Rate of the underlying loan. Since LTFH was already following this
practice even under the previous accounting standard for a significant portion
of its portfolio, the impact is minimal.
5. Taxation: IND AS mandates
computation of deferred taxes using balance sheet approach as against
P&L approach followed under previous accounting standard. Consequently,
opening reserves on the transition date have been restated and impact of
subsequent periods has been accounted for in P&L statement. This has
resulted in slight increase of tax liability for LTFH.
Results
highlights:
• Growth in
businesses: In
its focus lending businesses, namely Rural Finance, Housing Finance
and Wholesale Finance, LTFH recorded 27% YoY increase in assets in Q1FY19. LTFH
used sell-down of wholesale loans as a strategic lever in guiding its portfolio
composition to higher “Retailisation”. At the end of Q1FY19, Rural and Housing
businesses together constituted 46% of total portfolio as against 35% at the
end of Q1FY18.
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Book Growth
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Focus Businesses
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Q1FY19
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Q1FY18
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Q1FY19 vs
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Q1FY18
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Rural Finance
|
19,079
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10,824
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76%
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Housing Finance
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20,356
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13,743
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48%
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Wholesale Finance
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45,945
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42,760
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7%
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TOTAL
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85,380
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67,327
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27%
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LTFH
also delivered strong growth in its Investment Management & Wealth
Management businesses. Average Assets under Management (AAUM) in Investment
Management business increased to Rs. 71,118 cr. in Q1FY19 from Rs. 44,484 cr.
in Q1FY18 – a growth of 60%. Assets under Service (AUS) in Wealth Management
business increased to Rs.
18,866 cr. in Q1FY19 from Rs. 17,120 cr. in Q1FY18 – a growth of 10%.
• Improving asset
quality: LTFH
has shown a substantial improvement in its Stage 3 assets, both in
absolute and percentage terms. This has been achieved through vigorously
monitored early warning signals, concentration on early bucket collections and
strong Stage 3 resolution efforts. LTFH’s provision coverage has also increased
during this time, indicating strength of its portfolio.
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(Rs. Cr.)
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Q1FY19
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Q1FY18
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Gross Stage 3
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6,480
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7,577
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Net Stage 3
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2,463
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3,732
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Gross Stage 3 %
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7.93%
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11.70%
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Net Stage 3 %
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3.17%
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6.13%
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Provision Coverage %
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61.99%
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50.74%
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• Improving Cost to income
ratio: LTFH
Cost to Income ratio has reduced to 23.40% in Q1FY19 from 24.07% in
Q1FY18. This reduction has been achieved despite substantial investment in
digital & data analytics, branch infrastructure and manpower.
Management
Commentary:
Commenting on the results and financial
performance, Mr. Dinanath Dubhashi, Managing Director & CEO, LTFH,
said “We
continue on the journey of improving our RoE through continuously
enhancing our competitive position, strong NIMs + fees, tight cost controls and
improving asset quality. Retailisation of our book, and usage of digital and
data analytics remains pivotal to our strategy. We have now provided for the
legacy Infra stressed book. For Q1FY19, we have achieved RoE of 18.45% which is
within the steady state range. Having reached the steady state range of RoE,
our focus will be on maintaining it through responsible growth and minimizing
sigma by tightly managing all families of risk. ”
About
L&T Finance Holdings:
LTFH is a financial holding company offering a focused
range of financial products and services across rural, housing and wholesale
finance sectors, as well as mutual fund products and wealth management
services, through its wholly-owned subsidiaries, viz., L&T Finance Ltd.,
L&T Housing Finance Ltd., L&T Infrastructure Finance Company Ltd.,
L&T Investment Management Ltd. and L&T Capital Markets Ltd. LTFH is
registered with RBI as a CIC-ND-SI. LTFH is promoted by Larsen & Toubro
Ltd. (L&T), one of the leading companies in India, with interests in
engineering, construction, electrical & electronics manufacturing &
services, IT and financial services.
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