By Jindal Haria

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

Instrument Type

Date of issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

NCDs*^

-

-

-

INR50

IND AAA/Stable

Assigned

*Yet to be issued

^the rated limit is interchangeable with Unsecured subordinated Redeemable NCDs



Analytical Approach: Ind-Ra has taken a consolidated view of L&T Finance Holdings Limited (LTHFL; ‘IND AAA’/Stable) and its operating subsidiaries including LTFL (together referred to as financial services) while assigning the rating, given the financial and operational flexibilities that the consolidated finance platform offers to the company as well as the borrowers.

KEY RATING DRIVERS

L&T Group’s High Propensity and Ability to Support: The financial services business is among the high growth and profitability businesses in the L&T group. The financial services business has received regular capital infusions of about INR38 billion from the group since inception, of which INR20 billion was infused in 4QFY18. 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 (contingency lines of INR20 billion) towards financial services on an ongoing basis. The management also indicated fungibility with financial services in terms of capital and liquidity over the long term. Ind-Ra expects financial services to contribute about 20% to the group profits in the medium term.

Diversified Business Segments: LTFL is the largest subsidiary of LTFHL by loan book size, almost 50% of the total loans in 1HFY19. It houses the high growth segments of rural business such as micro loans, and tractor and two-wheeler loans of the entire LTFHL platform. In addition, it has real estate finance (16% of LTFL book and 55% of total real estate finance across the LTFHL platform), and wholesale finance including infrastructure and structured corporate finance (totalling 31%). Further, LTFL also carries defocused book on its balance sheet (personal loans, car, commercial vehicle, construction equipment loans, etc); it has almost runoff and constitutes about 2% of LTFL’s advances. The assets in infrastructure, corporate finance and real estate financing are booked in LTFL and other operating entities based on available liquidity and tenors, capital availability and regulations.

Adequate Liquidity: The treasury operations and officials 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 about 3% of the total liabilities. The company also has 57% of borrowings with tenor of more than one year. It also has unavailed bank lines of INR16 billion, on balance sheet liquidity of about INR30 billion, and is likely to increase roughly in line with the growth in the company’s loan book. LTFL has access to LTFHL’s liquidity which, in addition to its own fund mobilising ability, has access to L&T group’s liquidity.

Moderate Asset Quality:  Overall, LTFL’s stage 3 assets are about 4.2% of the total assets under management in 1HFY19. Rural business’ stage 3 assets are at 4.3% in 1HFY19, primarily driven by farm equipment (in line with peers). The provision coverage ratio was 62% in 1HFY19; Ind-Ra expects the provision coverage to remain steady. The agency expects the asset quality of rural portfolio to depend on the portfolio quality of micro loans (microloan portfolio increased 127% yoy in September 2018). The real estate portfolio may also witness stress over the next one-to-two years, given the already present underlying and liquidity stress especially over the last three months. 


For detailed rating rationale on LTFL’s parent LTFHL, please click here.


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 LTFL 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. Change of ownership outside of the group could also lead to a negative rating action.
 


COMPANY PROFILE

L&T Finance Ltd. (erstwhile Family Credit Ltd) is a wholly-owned subsidiary of LTFHL. It houses the rural business of LTFHL. It also has on-book real estate developer and wholesale finance loans.


FINANCIAL SUMMARY

Particulars

FY18

FY17

Total assets (INR million)

378,232.4

359,768.3

Total equity (INR million)

85,867.5

68,793.9

Net profit (INR million)

2,899.2

160.4

Return on average assets (%)

0.7

0.08

Equity/assets (%)

20.3

19.1

Source: LTFL


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

24 January 2018

NCDs

Long-term

INR110

IND AAA/Stable

IND AAA/Stable

ANNEXURE

Instrument

ISIN

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

NCD

INE027E07634

27 March 18

8.25%

8 April 2021

INR0.83

IND AAA/Stable

NCD

INE027E07642

28 March 18

8.25%

21 June 2021

INR0.95

IND AAA/Stable

NCD

INE027E07659

6 June 2018

8.65%

28 April 2022

INR0.55

IND AAA/Stable

NCD

INE027E07667

29 June 2018

8.70%

29 June 2021

INR10

IND AAA/Stable

NCD

INE027E07675

6 July 2018

8.95%

10 June 2022

INR0.35

IND AAA/Stable

NCD

INE027E07683

6 July 2018

8.92%

6 October 2021

INR1.27

IND AAA/Stable

NCD

INE027E07691

20 July 2018

8.92%

30 July 2021

INR0.25

IND AAA/Stable

NCD

INE027E07709

20 July 2018

8.95%

16 August 2021

INR3.6

IND AAA/Stable

NCD

INE027E07642

27 July 2018

8.25%

21 June 2021

INR0.8

IND AAA/Stable

NCD

INE027E07717

2 Aug 2018

8.86%

2 Aug 2023

INR0.35

IND AAA/Stable

NCD

INE027E07642

9 August 2018

8.25%

21 June 2021

INR0.55

IND AAA/Stable

NCD

INE027E07691

20 August 2018

8.92%

30 July 2021

INR0.11

IND AAA/Stable

NCD

INE027E07709

20 August 2018

8.95%

16 August 2021

INR0.51

IND AAA/Stable

NCD

INE027E07725

20 August 2018

8.60%

19 December 2019

INR0.25

IND AAA/Stable

NCD

INE027E07733

20 August 2018

8.75%

19 August 2020

INR0.8

IND AAA/Stable

NCD

INE027E07733

27 August 2018

8.75%

19 August 2020

INR3.4

IND AAA/Stable

NCD

INE027E07725

31 August 2018

8.60%

19 August 2020

INR0.5

IND AAA/Stable

NCD

INE027E07741

31 August 2018

8.62%

19 December 2019

INR0.25

IND AAA/Stable

NCD

INE027E07683

31 August 2018

8.92%

6 October 2021

INR0.5

IND AAA/Stable

NCD

INE027E07758

12 September 2018

8.82%

3 September 2021

INR0.59

IND AAA/Stable

NCD

INE027E07758

31 October 2018

8.82%

3 September 2021

INR0.05

IND AAA/Stable

NCD

INE759E07897

31 October 2018

9.48%

14 March 2022

INR0.76

IND AAA/Stable

NCD

INE027E07618

31 October 2018

7.95%

12 December 2022

INR0.17

IND AAA/Stable

NCD

INE027E07659

14 November 2018

8.65%

28 April 2022

INR0.3

IND AAA/Stable

NCD

INE027E07741

20 November 2018

8.62%

30 January 2020

INR0.52

IND AAA/Stable

NCD

INE027E07550

20 November 2018

7.70%

6 October 2022

INR0.65

IND AAA/Stable

Utilised

 

 

 

 

INR28.85

 

Unutilised

 

 

 

 

INR81.15

 

Total

 

 

 

 

INR110.00

 


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level 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.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Associate 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

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121