L&T Finance limping back to normalcy in operations but weak business model as revealed during the NBFC crisis is a concern area

Investment in Holding company results in sub-par returns over listed subsidiaries, prime example being Bajaj Finserve which has grossly underperformed Bajaj Finance, its listed subsidiary by a wide margin
September 7, 2021
Bulging order book, advantageous position for new project wins from government departments and enterprises provide very good earnings visibility; execution is main challenge
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L&T Finance, the NBFC subsidiary of engineering giant L&T lends to infra, housing and rural sector. Within these, the largest lending book is for infra projects and real estate developers. There have been past issues with NPAs in these segments and that is a cause of concern. However, management has provided for these chunky NPAs and focused on low ticket safer lending products. Recent performance has recorded an uptick and lower NPAs and credit costs are noteworthy. However, we have a neutral weight rating due patchy lending track record and dismal performance during the crisis period in NBFCs space which exposed its weak risk management model – 27-08-21 Price : 81.40 Rating: Neutral Weight Recommendation: Hold

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