Buy L&T Finance Holdings for a price target of Rs 100
Emkay Global has retained its buy on the stock with a Mar’23 target price of Rs100, valuing the consolidated entity (post sale of its AMC business-LTIM) using the excess return on equity method.
“Our target price implies a Mar’24 E price/BVPS of 1 times. While we raise our cost of equity from 13.1% to 13.5%, our TP-implied P/BV remains stable on account of an improved outlook for the infra business and the additional overlay buffer provided by the proceeds from the sale of the asset management company business.
According to the brokerage key downside risks for the company would be large ticket exposures slipping to NPA in housing and wholesale books; weakness in rural household balance sheets resulting in higher NPAs in the rural portfolio.
L&T Finance Holdings: Highlights from the quarterly numbers
The retail portfolio according to Emkay Global recorded the highest ever quarterly disbursement of Rs 81 billion. The micro loan book also recorded the highest ever quarterly disbursement of Rs38bn, up 21% yoy, with collection efficiency surpassing pre-Covid levels at 99.6%. “While disbursements in the housing business increased 15%qoq/50% yoy, the overall housing AUM declined 1% qoq due to higher repayments, resulting in the wholesale book declining 3% qoq. RoA for the housing business declined 40bps qoq due to an equivalent decrease in NIMs (lower proportion of higher yielding wholesale book). Infrastructure book disbursements in Q4 were Rs61bn, which led to AUM growth of 5% qoq. Overall asset quality improved sequentially, with annualized credit costs declining 44bps to 3% (Q3: 3.4%). GS3 in Q4 was 3.8% (Q3: 5.9%) and NS3 was 2% (Q3:3%). Had loans worth Rs19.1bn not been sold to the ARC, the GS3 would have been 5.7%. Stage 3 PCR was 47.4% (Q3: 48.7%),” the brokerage has said.
Buy Star Health for a target price of Rs 945
Emkay Global has set a price target of Rs 945 on the stock of Star Health as against the current market price of Rs 729.
According to the brokerage the Management remains confident about the growth trajectory even after capturing a 1/3rd of the retail health market. However, management has also made it clear that they will exit unprofitable group health businesses even if that affects overall growth. On claims, management said that Apr’22 claims ratios hovered around 64-65%. And with profitability returning, management remains very comfortable with the capital position.
“Factoring in the developments of Q4FY22, we have made some minor changes to our FY23-25 estimates. To reflect the recent increase in risk-free rates, we have increased our cost of equity to 12.5% and we roll forward our target price to Jun’23. Based on the method of discounting future profits, we reduce our Jun’23 target price to Rs 945, implying an FY25E P/E of 42x and P/GWP of 2.6x. We reiterate our Buy rating on the stock,” the brokerage has said,