By Jindal Haria

India Ratings and Research (Ind-Ra) rated L&T Infrastructure Finance Company Limited’s (LTIF) non-convertible debentures (NCDs) as follows:

Instrument Type

Date of issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

NCDs*

-

-

-

INR20,000

IND AAA/Stable

Assigned

*Yet to be issued

KEY RATING DRIVERS

L&T Group’s High Propensity and Ability to Support: Ind-Ra had taken a consolidated view of L&T Finance Holdings Limited (LTHFL; NCDs rated at‘IND AAA’/Stable) and its operating subsidiaries including LTIF (together referred to as financial services) for the ratings. This is because of the financial and operational flexibilities that the consolidated finance platform offers to itself as well as to the borrowers. Financial services is among the high growth and profitability businesses in the L&T group and has received regular capital infusions (about INR18 billion) from the group since inception. L&T group has a strong operating profile with adequate resources in terms of on-book liquidity, ability to raise funds from banks as well as capital markets and assets/investments that can be monetised to support financial services’ growth and liquidity requirements. 

The L&T group has articulated that financial services is a core and integral part of its strategy and expected to be one of the key value drivers for the group. It will also maintain strategic linkages, management oversight and control, majority shareholding and support lines (INR20 billion increased from INR10 billion) towards financial services on an ongoing basis. The management also indicated fungibility with financial services in terms of capital and liquidity over long term. Ind-Ra expects financial services to contribute about 15-20% to the group profits in the medium term. 

Energy and Transportation Segments Dominant:
LTIF is the second largest subsidiary of LTFHL by loan book size: 29% of total loans amounting to INR210 billion in 1HFY18. The infrastructure business is housed in LTIF, L&T Finance Ltd and L&T Infrastructure Debt Fund. 62% of LTIF’s book is constituted by energy assets, of which 64% is renewables and 22% is thermal power. The balance 32% is constituted by transportation and non-infra exposures. Assets in infrastructure, corporate finance and real estate financing are booked in LTIF and other operating entities based on available liquidity and tenors, capital availability and regulations. In addition, LTFHL provides flexibility to developers through multiple financing platforms: non-banking finance company (NBFC through LTIF), NBFC-infrastructure debt fund, sell-down and debt capital market desks. Consequently, LTFHL (through LTIF and other subsidiaries) can remain exposed to performing assets through the project cycle.

Moderate Asset Quality:
LTIF (along with other operating subsidiaries of LTFHL) is one of the largest NBFCs providing wholesale funding; over past few years, it has avoided thermal power and focused on projects with a lower construction risk. The total impaired assets in the wholesale segment including thermal power exposures of LTFHL were about INR40 billion in 1HFY18, of which INR10 billion are provided for. Overall, LTIF’s gross non-performing assets were about 5.5% of total assets under management in 1HFY18, of which about 50% are provided for. Some thermal power exposures could further slip and hence, LTIF (along with other subsidiaries that have such exposure) is undertaking accelerated provisioning on the exposures. Ind-Ra expects the asset quality to improve in the medium to long term, as the stress in some infrastructure assets gets recognised and the proportion of newer vintage infrastructure projects increases. These have shorter set-up periods and therefore lower project completion risks. 

Adequate Liquidity :
The treasury operations and management are common for LTFHL and its operating subsidiaries. In terms of asset liability management, the company’s short-term assets are in excess of short-term liabilities by 13% of the total liabilities. The company also has 41% of borrowings with tenor of over three years. It also has unavailed bank lines of INR20.41 billion which the management expects to increase roughly in line with the growth in the company’s loan book. It has access to LTFHL’s liquidity. LTFHL, in addition to its own fund mobilising ability, has access to L&T’s liquidity.


RATING SENSITIVITIES

Negative: Dilution of support expectations in Ind-Ra’s opinion, either on account of inability to manage asset quality (especially in view of the high loan growth strategy), resulting in higher-than-expected losses or diminished business prospects, materially weakened financial parameters, or decreased importance of LTIF or financial services to the L&T group, or otherwise could lead to a rating downgrade. Lack of timely support in terms of equity capital for growth or a liquidity event would also lead to a negative rating action. Any deterioration in the credit profile of L&T group is also likely to impact the ratings. A change of ownership outside of the group could also lead to a negative rating action.


COMPANY PROFILE

LTIF is a wholly owned subsidiary of LTHFL which provides business loans for large-scale infrastructure projects in India. 


FINANCIAL SUMMARY

Particulars (Standalone)

FY17

FY16

Total assets (INR million)

248,646.7

242,492.9

Total equity (INR million)

28,808.4

28,633.6

Net profit (INR million)

422.0

2400.4

Return on average assets (%)

0.2

1.1

Equity/assets (%)

11.6

11.8

Source: LTHF

 

 



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121