Downward factors: * Decline in L&T's credit risk profile by one notch could lead to a similar rating change for LTFH and its subsidiaries * Any material change in the shareholding or support philosophy of L&T for the LTFS group * Weakening in the capital structure of the LTFS group, with gearing exceeding 7.5 times on a steady-state basis, and/or deterioration in asset quality leading to a substantial decline in profitability
About the LTFS group The group has a diversified product portfolio, with presence in wholesale as well as retail finance segments. Over the past couple of years, the management has exited some lending asset classes and currently caters to limited segments, such as farm equipment finance, two-wheeler finance, micro loans, consumer loans, housing and real estate finance and infrastructure finance. As part of this strategy, the supply chain financing portfolio was sold to Centrum Financial Services Ltd in fiscal 2019. Furthermore, structured finance group and DCM were identified and classified as part of the defocused book during the quarter ended June 30, 2019. The group also has presence in wealth and asset management businesses. As on December 31, 2019, LTFH's consolidated networth was Rs 14,606 crore. In fiscal 2019, on a consolidated basis, profit after tax (PAT) was Rs 2,232 crore on total income of Rs 13,302 crore against Rs 1,278 crore and Rs 10,266 crore, respectively, for the previous fiscal. For the nine months ended December 31, 2019, PAT was Rs 1315 crore (PAT of Rs 1788 crore before the one-time impact of DTA) on total income of Rs 11,137 crore (against Rs 1,680 crore and Rs 9,918 crore, respectively, for the corresponding period of the previous fiscal). About the key companies LTFH is the holding company for the financial service businesses of L&T. It was incorporated in 2008 and is listed under the National Stock Exchange and Bombay Stock Exchange; it is also registered with the Reserve Bank of India as a non-banking financial company - Core Investment Company. On a standalone basis, LTFH reported a PAT and total income of Rs 267 crore and Rs 526 crore, respectively, in fiscal 2019 (against Rs 266 crore and Rs 478 crore, respectively, in fiscal 2018). For the nine months ended December 31, 2019, LTFH reported loss of Rs 73 crore on total income of Rs 110 crore (PAT of Rs 40 crore on total income of Rs 216 crore for the corresponding period of the previous fiscal). L&T Finance Ltd is a non-banking finance company (NBFC) incorporated in 1993 and wholly held by LTFH. It had AUM of Rs 48,846 crore as on December 31, 2019, comprising micro loans (26% of total AUM), farm equipment loans (17%), two-wheeler loans (13%), LAP (1%), real estate financing (20%), infrastructure loans (15%) and balance in defocused. The gross and net stage 3 assets were 4.7% and 2.2% respectively as on December 31, 2019 (3.59% and 1.24%, respectively, as on March 31, 2019). Networth and gearing were Rs 9,201 crore and 5.1 times, respectively, as on December 31, 2019. In fiscal 2019, the company reported a PAT of Rs 846 crore on total income of Rs 7,383 crore against Rs 117 crore and Rs 5,071 crore, respectively, for the previous fiscal. For the nine months ended December 31, 2019, PAT and total income were Rs 347 crore and Rs 6,717 crore, respectively (Rs 687 crore and Rs 5,432 crore, respectively, for the corresponding period of the previous fiscal). PAT before the one time impact of DTA was at Rs 550 crore for the nine months ended December 31, 2019. L&T Infrastructure Finance Company Ltd is an NBFC - infrastructure finance company, incorporated in 2006 and wholly held by LTFH. It had AUM of Rs 26,703 crore as on December 31, 2019, comprising infrastructure loans (83% of total AUM), real estate financing (15%) and balance in defocused. The gross and net stage 3 assets were 12.2% and 5.3% respectively as on December 31, 2019 (13.55% and 5.88% as on March 31, 2019). The gross stage 3 predominantly pertains to the legacy book, which in absolute terms has seen an improvement; the gross stage 3 has reduced to Rs 3,165 crore as on December 31, 2019 from Rs 4,029 crore as on December 31, 2018. Networth and gearing were Rs 4,762 crore and 4.7 times, respectively, as on December 31, 2019. In fiscal 2019, the company reported a PAT of Rs 232 crore on total income of Rs 2,864 crore against Rs 138 crore and Rs 2,667 crore, respectively, for the previous fiscal. For the nine months ended December 31, 2019, PAT and total income were Rs 131 crore and Rs 2,354 crore, respectively (Rs 161 crore and Rs 2,218 crore, respectively, for the corresponding period of the previous fiscal). PAT before the one time impact of DTA was at Rs 389 crore for the nine months ended December 31, 2019. L&T Housing Finance Ltd is a housing finance company incorporated in 1994 and wholly held by LTFH. It had AUM of Rs 12,946 crore as on December 31, 2019, comprising home loans (58% of total AUM), LAP (29%), and real estate financing (10%). The gross and net stage 3 assets were 1.8% and 1.3% respectively as on December 31, 2019 (1.89% and 1.33% as on March 31, 2019). Networth and gearing were Rs 1,588 crore and 8.0 times, respectively, as on December 31, 2019. In fiscal 2019, the company reported a PAT of Rs 269 crore on total income of Rs 1511 crore against Rs 184 crore and Rs 1,185 crore, respectively, for the previous fiscal. For the nine months ended December 31, 2019, PAT and total income were Rs 57 crore and Rs 978 crore, respectively (Rs 174 crore and Rs 1,128 crore, respectively, for the corresponding period of the previous fiscal). PAT before the one time impact of DTA was at Rs 69 crore for the nine months ended December 31, 2019. L&T Infra Debt Fund (incorporated in 2013) is an infrastructure debt fund incorporated as a company under the Companies Act. It operates under the regulation and supervision of the Reserve Bank of India. It had AUM of Rs 8,990 crore as on December 31, 2019. The gross stage 3 assets were nil, and networth and gearing were Rs 1,229 crore and 6.7 times, respectively, as on December 31, 2019. In fiscal 2019, the company reported a profit after tax (PAT) of Rs 132 crore on total income of Rs 755 crore against Rs 139 crore and Rs 568 crore, respectively, for the previous fiscal. For the nine months ended December 31, 2019, PAT and total income were Rs 168 crore and Rs 676 crore, respectively (Rs 116 crore and Rs 584 crore, respectively, for the corresponding period of the previous fiscal).
1Borrowing cost = Annualised Interest Cost during the period divided by the average of outstanding borrowings at the beginning and the end of the period |