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/Subordinated debt^*

-

-

-

INR90

IND AAA/Stable

Affirmed

NCDs*

-

-

-

INR110

IND AAA/Stable

Affirmed


^ INR90 billion limits shared by LTFL, L&T Infrastructure Finance Company (‘IND AAA’/Stable) and L&T Housing Finance Limited (‘IND AAA’/Stable).

* 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 Limited,  L&T Housing Finance Limited 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.

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. The 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 (1QFY20: 50%  of the total loans). It houses 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 (1QFY20: 21% of LTFL’s book and 69% of developer loans across the LTFHL platform) and wholesale finance including infrastructure and structured corporate finance (25% of LTFL’s book) on its books. LTFL’s exposure to 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 the available liquidity and tenors, capital availability and regulations.

 

Moderate Standalone Asset Quality: Overall, LTFL’s gross stage 3 assets were about 4.36% of the total assets under management in 1QFY20. 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. The company’s wholesale lending vertical (that houses large legacy originations too) has the highest stage 3 assets (1QFY20: 6.5%). The provision coverage ratio stood at 62%.

 

Ind-Ra expects the asset quality to remain steady, given that the 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, at end-1QFY20, the cumulative short-term positive mismatch (inflows exceed outflows) in the short-term maturity buckets was 15.95% of the total assets, including prepayments budgeted based on past behaviour and excluding committed lines from banks and the L&T group. Excluding this, the mismatch decreased to 12.22% (INR71.36 billion) of the total assets at end-June 2019. It also had unavailed bank lines of INR23.36 billion in 1QFY20, which the management expects to increase roughly in line with the growth in the company’s loan book. The company also has 20% of borrowings with tenor over three years. Moreover, the company raised INR10 billion of NCDs through public issuances in 1QFY20 (INR15 billion in 4QFY19). LTFL, in addition to its own fund mobilising ability, has access to L&T group’s and LTFHL’s liquidity. Nevertheless, given that there is stress in the industry for segments in which LTFL and consolidated LTFHL operate, Ind-Ra expects the standalone balance sheet liquidity as well as the overall asset liability management position to improve on an on-going basis. This will remain a key monitorable. 

Leverage remains Key Monitorable: LTFL had leverage of 5.2x at FYE19 and 5.4x at 1QFY20. The consolidated leverage of LTFHL reduced to 6.2x in 1QFY20 from 7.0x in 1QFY18. Ind-Ra expects the consolidated leverage of LTFHL to continue its pace of decline, especially given that a substantial portion of the portfolio is non-retail.
 


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, lack of improvement in standalone as well as overall liquidity position, inadequate decline in leverage in the opinion of the agency 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. Also, any material deterioration in the credit profile of the 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)*

FY19

FY18

Total assets (INR billion)

558.4

441. 7

Total equity (INR billion)

89.0

82.9

Net profit (INR billion)

8.5

1.2

Return on average assets (%)

1.7

0.3

Equity/assets (%)

15.9

18.8

Source: LTFL

* Calculated as per IND-AS

 

 

 



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

3 Apr 2019

24 December 2018

24 January  2018

NCDs

Long-term

INR200

IND AAA/Stable

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

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

NCD

INE027E07873

1-Mar-2019

8.75

22-May-2020

INR2.75

IND AAA/Stable

NCD

INE027E07AP2

28-May-2019

8.8

28-May-2026

INR8.5

IND AAA/Stable

Utilised

INR44.09

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

NCD (Public Issue)

INE027E07AA4

15-Apr-19

8.7

15-Apr-22

INR1.11

IND AAA/Stable

NCD (Public Issue)

INE027E07AB2

15-Apr-19

8.9

15-Apr-22

INR1.89

IND AAA/Stable

NCD (Public Issue)

INE027E07AC0

15-Apr-19

8.71

15-Apr-22

INR0.04

IND AAA/Stable

NCD (Public Issue)

INE027E07AD8

15-Apr-19

8.91

15-Apr-22

INR0.17

IND AAA/Stable

NCD (Public Issue)

INE027E07AE6

15-Apr-19

8.8

15-Apr-24

INR0.73

IND AAA/Stable

NCD (Public Issue)

INE027E07AF3

15-Apr-19

9

15-Apr-24

INR1.86

IND AAA/Stable

NCD (Public Issue)

INE027E07AG1

15-Apr-19

8.48

15-Apr-24

INR0.02

IND AAA/Stable

NCD (Public Issue)

INE027E07AH9

15-Apr-19

8.66

15-Apr-24

INR0.22

IND AAA/Stable

NCD (Public Issue)

INE027E07AI7

15-Apr-19

8.81

15-Apr-24

INR0.01

IND AAA/Stable

NCD (Public Issue)

INE027E07AJ5

15-Apr-19

9.01

15-Apr-24

INR0.19

IND AAA/Stable

NCD (Public Issue)

INE027E07AK3

15-Apr-19

8.85

15-Apr-27

INR0.11

IND AAA/Stable

NCD (Public Issue)

INE027E07AL1

15-Apr-19

9.05

15-Apr-27

INR3.52

IND AAA/Stable

NCD (Public Issue)

INE027E07AM9

15-Apr-19

8.52

15-Apr-27

INR0.01

IND AAA/Stable

NCD (Public Issue)

INE027E07AN7

15-Apr-19

8.7

15-Apr-27

INR0.18

IND AAA/Stable

Utilised

INR25.00

 

Unutilised*

INR25.00

 

Total Utilised

INR69.09

 

Total Unutilised

INR130.91

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.

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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

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121