By Jindal Haria

India Ratings and Research (Ind-Ra) has taken the following actions on L&T Finance Limited’s (LTFL) debt instruments:

Instrument Type

Date of issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Non-convertible debentures (NCDs)/Bank borrowings^

-

-

-

INR90

IND AAA/Stable

Assigned

NCDs*

-

-

-

INR110

IND AAA/Stable

Affirmed

^ INR90 billion limits shared by LTFL, L&T Infrastructure Finance Company Limited and L&T Housing Finance Limited.
 Details in Annexure

Analytical Approach:
Ind-Ra continues to take consolidated view of the parent L&T Finance Holdings Limited (LTFHL; ‘IND AAA’/Stable) and its 100% (direct and indirect) operating subsidiaries L&T Infrastructure Finance Company,  L&T Housing Finance and LTFL (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.

To read the detailed rationale of LTFHL, please click
here.

KEY RATING DRIVERS

L&T Group’s High Propensity and Ability to Support: Financial services is among the high growth and profitability businesses in the L&T group and has received regular capital infusions (about INR35 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 is likely to be one of the key value drivers for the group. The group maintains strategic linkages, management oversight and control, majority shareholding and provide support lines (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’s profits in the medium term. 

Diversified Business Segments:
LTFL is the largest subsidiary of LTFHL by loan book size (1HFY19: 46% of total loans). It houses the high growth rural business segments such as micro loans, tractor and two-wheeler financing of the entire LTFHL platform.  It also has real estate developer loans (9MFY19: 18% of LTFL’s book and 59% of developer loans across the LTFHL platform) and wholesale finance including infrastructure and structured corporate finance (26% of LTFL’s book) on its books. LTFL’s exposure towards wholesale clients declined during FY19 as the other businesses ramped up aggressively and the allocated growth capital and liquidity for this segment is lower than that for rural and housing segments. 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. 

Moderate Standalone Asset Quality:
Overall, LTFL’s gross stage 3 assets were about 4.10% of the total assets under management in 3QFY19. The rural business has lower stage 3 assets at 3.7% post write-off and recoveries on the demonetisation impacted portfolio, than other businesses. Ind-Ra expects the microfinance business to witness additional pressure on account of the early delinquencies witnessed especially in Odisha; the macro-prudent provisions of INR1.8 billion could help mitigate the credit cost expectations in the rural business. Wholesale lending vertical (that houses large legacy originations too) has the highest stage 3 assets (9MFY19: 4.9%). The provision coverage ratio is 62%. 

Ind-Ra expects the asset quality to remain steady, given that resolution process for some of the stressed assets in wholesale book may be completed over the next one year while fresh slippages could be from the rural and real estate segments. The real estate lending model incorporates longer tenor loans, market intelligence operations, technical evaluations and early warning based internal reporting across the loan tenure. This implies that potential stresses in the real estate book, in the agency’s opinion, could show up later than for other lenders while providing LTFHL more time to resolve project level issues. 

Adequate Standalone Liquidity:
The treasury operations and management are common for LTFHL and its operating subsidiaries. In terms of asset liability management, the cumulative short-term positive mismatch in the short term maturity buckets is 11.69% of the total assets, including prepayments budgeted based on past behaviour and excluding committed lines from banks. Excluding this, the gap decreases to negative 5.43% (INR29.70 billion) of the total assets. It also has unavailed bank lines of INR60.65 billion, which the management expects to increase roughly in line with the growth in the company’s loan book. The company also has 14% of borrowings with tenor over three years. Moreover, the company has raised INR15 billion of NCDs through public issuances in March 2019. Besides, it has access to LTFHL’s liquidity, which addition to its own fund mobilising ability has access to L&T group’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 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 material deterioration in the credit profile of L&T group or a change of ownership outside of the group could also lead to a negative rating action.
 


COMPANY PROFILE

LTFL is a wholly owned subsidiary of LTFHL. It houses the rural business of LTFHL. It also has on-book real estate developer loans and wholesale finance. LTFL was earlier known as Family Credit Limited, LTFL was formed in FY17 after the merger of the erstwhile L&T Finance Ltd with Family Credit. 


FINANCIAL SUMMARY

Particulars (Standalone)

FY18

FY17#

Total assets (INR billion)

446.57

359.77

Total equity (INR billion)

85.87

68.79

Net profit (INR billion)

2.90

0.16

Return on average assets (%)

0.72

0.08

Equity/assets (%)

19.23

19.1

Source: LTFL

#LTFL merged entity

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

24 December 2018

24 January  2018

NCD

Long-term

INR200

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

ANNEXURE

Issue Type

ISIN

Date of Issuance

Coupon rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

NCD

INE027E07634

27 March 2018

8.25

8 April 2021

INR0.825

IND AAA/Stable

NCD

INE027E07642

28 March 2018

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

INR0.8025

IND AAA/Stable

NCD

INE027E07717

2 August 2018

8.86

2 August 2023

INR0.35

IND AAA/Stable

NCD

INE027E07642

09 August 2018

8.25

21 June 2021

INR0.55

IND AAA/Stable

NCD

INE027E07691

20 August 2018

8.92

30 July 2021

INR0.108

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 December 2019

INR0.5

IND AAA/Stable

NCD

INE027E07741

31 August 2018

8.62

30 January 2020

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

INR0.758

IND AAA/Stable

NCD

INE027E07618

31 October 2018

7.95

12 December 2022

INR0.165

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

INR0.519

IND AAA/Stable

NCD

INE027E07550

20 November 2018

7.70

6 October 2022

INR0.65

IND AAA/Stable

NCD

INE027E07774

4 January 2019

9.00%

4 January 2024

INR8

IND AAA/Stable

NCD

INE027E07782

11 January 2019

8.81

11 March 2020

INR3

IND AAA/Stable

NCD

INE027E07790

11 January 2019

9.00

9 February 2024

INR0.25

IND AAA/Stable

NCD

INE027E07840

24 January 2019

8.81

13 March 2020

INR2

IND AAA/Stable

NCD

INE027E07857

24 January 2019

8.93

8 August 2022

INR0.5

IND AAA/Stable

NCD

INE027E07865

1 February 2019

9.02

11 March 2024

INR0.25

IND AAA/Stable

Utilised

INR42.85

NCD (Public Issue)

INE027E07915

13 March 2019

9.10

13 April 2022

INR0.80

IND AAA/Stable

NCD (Public Issue)

INE027E07923

13 March 2019

9.10

13 March 2024

INR0.30

IND AAA/Stable

NCD (Public Issue)

INE027E07980

13 March 2019

8.84

13 March 2029

INR0.01

IND AAA/Stable

NCD (Public Issue)

INE027E07931

13 March 2019

9.25

13 March 2024

INR2.36

IND AAA/Stable

NCD (Public Issue)

INE027E07972

13 March 2019

9.35

13 March 2029

INR1.11

IND AAA/Stable

NCD (Public Issue)

INE027E07881

13 March 2019

9.00

13 April 2022

INR1.77

IND AAA/Stable

NCD (Public Issue)

INE027E07949

13 March 2019

8.75

13 March 2024

INR0.02

IND AAA/Stable

NCD (Public Issue)

INE027E07964

13 March 2019

9.20

13 March 2029

INR0.08

IND AAA/Stable

NCD (Public Issue)

INE027E07998

13 March 2019

8.98

13 March 2029

INR1.02

IND AAA/Stable

NCD (Public Issue)

INE027E07899

13 March 2019

9.10

13 April 2022

INR6.88

IND AAA/Stable

NCD (Public Issue)

INE027E07907

13 March 2019

9.00

13 April 2022

INR0.05

IND AAA/Stable

NCD (Public Issue)

INE027E07956

13 March 2019

8.89

13 March 2024

INR0.60

IND AAA/Stable

Utilised

INR15.00

 

Unutilised*

INR35.00

 

Total Utilised

INR57.85

 

Total Unutilised

INR142.15

Total

INR200.00

*The rated limit is for secured redeemable NCDs and interchangeable with unsecured subordinated redeemable NCDs


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.

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. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

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

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

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