L&T Finance eyes consolidation in quote to improve returns

Posted on 11 May 2016 by Admin   |  Filed under Finance, BusinessComments (7)

On the lending side, L&T Finance will unwind its loan book in four segments vehicle financing, little commercial cars, building and construction equipment finance and home mortgage to salaried individuals. L&T Finance is open to selling these portfolios must there be an interested buyer.

On the retail financing side, we have a number of products. Some of these products we added in the anticipation of a banking license in 2012-13 because they make distinguished sense for a bank. However, they are not usually NBFC products, said Deosthalee. He included that the process of de-growing these companies has actually been going on for more than a year now, but the company wishes to exit business as quickly as possible.

It is not a case of scaling down however it is a case of making sure that you grow competitively and you concentrate on reforms. These products were not contributing to our return on equity. A few of these are not NBFC items and a few of them we do not have competitive benefit, he stated.

According to a discussion made by the company in the first week of May, L&T Finance s combined loan book for commercial equipment and commercial vehicles section stood at Rs.1,569 crore at the end of March as compared with Rs.2,004 crore from the year-ago period.

During the March quarter, its loans and advances grew by 22% to Rs.57,831 crore from a year earlier. Net revenue on a consolidated basis for the quarter grew by 15% to Rs.237 crores.

While revealing its quarterly earnings, the company said that its future method will be based upon a single-minded focus to enhancing its return on equity (RoE). Elaborating on that, Deosthalee said that the idea is to enhance the RoE from about 11% to 15% very first and ultimately to 18% in the next couple of years. The focus of the entire management team right now is on improving RoE, he said.

While winding down certain retail lending companies, L&T Finance will continue to concentrate on chances on the wholesale lending side including refinancing of infrastructure loans through its facilities debt fund. It also sees significant chance in providing to the renewable energy segment, where L&T Finance has a loan book of near to Rs.10,000 crore.

Virtually 60% of our wholesale funding book is functional jobs. Genuine task risk is limited to 40% of the book, stated Deosthalee, adding that there is substantial opportunity in the facilities funding segment as banks reduce their lending to this segment.

There is likewise no facilities financing-focused loan provider in the market anymore after IDFC Ltd transformed into a bank, he stated.

Does L&T Finance still harbor its own banking passions?

Maybe. Deosthalee says they will continue to analyze the alternative and see if it makes good sense against the background of new banks and specialized banks entering the sector.

L&T Finance, which also has a number of fee-based companies, will leave its private equity company that is mostly purchased facilities companies.

We are checking out the alternative of selling these investments. We remain in talks with investment lenders and in the next few days we will shortlist the banker to deal with the sale of PE portfolio, Deosthalee said while explaining that some investments made by L&T Infrastructure Finance as part of its proprietary investment book will likewise be sold. We ought to have the ability to sell these investments, if not fully then at least partly, in 2012, he stated.

L&T Finance is, however, not wanting to leave its mutual fund business. The company might take a look at introducing a minority equity partner into the business if that partner can include value, stated Deosthalee.

The company is searching for a minority partner who might use up to a 26% stake in our shared fund company and can provide us access to foreign funds in return. This is a fee-based earnings company and it is clearly growing. 40% of our possessions under management (AUM) remain in equity and 60% in fixed-income papers. A few players have such a mix of possessions, Deosthalee stated, adding that there is no concern of quitting control in the shared fund business.

L&T Investment Management Ltd, which had actually bought loss-making Fidelity Mutual Fund in 2012, has started making earnings in recent years.

With typical AUM of around Rs.26,000 crore for the March quarter, L&T Mutual Fund is the 14th biggest among 43 fund houses in the country.

According to an expert at Reliance Securities Ltd, L&T Finance s strategy to trim specific businesses may hit leading line in the short-term however will start to enhance return on equity over the next 3 to 4 quarters.

In the commercial equipment and commercial automobile business, the crucial problem is rising bad assets. It is a pattern and apart from L&T Finance lots of other companies too are combining this company or completely leaving. In the vehicle funding space, there are already numerous existing leaders and it is extremely challenging for L&T Finance or any brand-new company take business far from them, said the analyst on condition of anonymity.

L&T Finance may be best in moving focus from such businesses to the ones where they have stronghold, the expert at Reliance Securities included.

The consolidation of company lines will be accompanied by efforts to reduce expense and improve performance, stated Deosthalee, but he rejected that the company had actually undertaken any substantial layoffs.