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L&T Finance Holding Ltd. reported a Q3 FY23 consolidated profit after tax of ~Rs 4.5 billion (up 47% YoY, 8% beat), driven by a ~40 basis points QoQ expansion in net interest margins (and fee income) which were aided by an improving retail mix.
L&T Finance concluded the sale of its mutual fund business with a pre-tax gain of ~Rs 26.1 billion. The proceeds were utilised for one-time exceptional provisions of ~Rs 26.9 billion to enable accelerated sell-down of the wholesale book.
Management has guided that this would adequately cover any downside risks of an accelerated sell-down without any impact on retail profitability.
We expect the proportion of the retail mix to improve to 85%/93% by FY24/FY25E. We have increased our FY23/FY24 earnings per share estimates by ~9% each to incorporate higher margins and a moderation in credit costs. Including the sharp run-down in the wholesale book, we model loan growth of 7%/18% in FY24/FY25E.
We estimate a profit after tax compound annual growth rate of 33% over FY22-FY25E for a consolidated return on asset/return on equity of 2%/10.2% in FY25.
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