So far, Jan 2021 has been eventful for L&T Finance Ltd. Apart from reporting a ~50% increase in its Q3 FY 2021 loan disbursements, the private-sector lender also announced a rights issue of Rs 3,000 cr. Let’s discuss the details and prospects of the company.
The article covers:
Q3 results of L&T Finance Ltd
Q3 being the first quarter post lifting the COVID-related moratorium announced by the government was an eventful one for L&T Finance Ltd. A major chunk of L&T Finance’s borrowers who had defaulted EMI payments during the moratorium have started making the instalments.
Although L&T Finance Holdings’ Q3 FY 2021 results didn’t meet analysts’ expectations, an uptick in loan disbursements made up for the frowns on the street. Here are the highlights:
- Quarterly disbursements of L&T Finance increased by 51%, the highest since Q1 FY 2021
- Consolidated net profit declined by 51% y-o-y at Rs 291 cr
- Disbursements during the quarter improved across most segments and were the highest in the farm and 2-wheeler segments since FY 2017. However, disbursement of micro loans was muted. Here are the details:
- *Farm equipment disbursements increased by 43% q-o-q at Rs 1,554 cr
- *2-wheeler disbursements rose by 50% at Rs 1,652 cr q-o-q
- *Infrastructure disbursements recorded were Rs 4,641 cr, the highest in ~3 yrs
- *Rural disbursements zoomed by 49%
- Net interest income (NII) rose 2% y-o-y to Rs 1,779.6 cr
- Made additional provisions of Rs 1,739 cr on the standard book as of Q3 FY 2021
- L&T Finance Holdings Ltd’s restructured assets were worth Rs 213 cr. The company holds a provision of 10% against these
- The maximum potential restructuring will be or Rs 1,438 cr (1.4% of the total book)
L&T Finance rights issue
Recently, L&T Finance Ltd announced a rights issue of Rs 3,000 cr. The offer will open for subscription on 1st Feb 2021 and close on 15th of the same month. The company will offer rights issue based on an entitlement ratio at 17:74 as on the record date, at a discounted price of Rs 65 apiece. Meaning, as an eligible holder of an L&T Finance share, you will get 17 equity shares for every 74 shares you hold as on the record date.
Currently, L&T Finance Holdings Limited has outstanding shares of about 200.81 cr. This figure would increase to about 246.94 cr after the rights issue, if fully subscribed.
What is rights issue?
A rights issue gives existing shareholders a right to buy new shares at a discounted price during a predetermined period. In other words, it allows the company to raise funds by issuing additional equity shares to its existing shareholders.
Purpose of L&T Finance Holdings’ rights issue
Like banks, other financial institutions have also been raising funds to augment their capital buffers as a measure to safeguard themselves against the impact of the pandemic. So far, NBFCs such as Mahindra & Mahindra Finance and Shriram Transport Finance have raised Rs 3,089 cr and Rs 1,500 cr via rights issues. L&T Finance Ltd is following suit. Post the rights issue, L&T Finance Holdings’ Tier-1 capital is likely to increase from 17.8% to 19.6%.
Eligibility criteria to subscribe to L&T Finance Holdings Ltd’s rights issue
You are eligible to apply for at least 1 L&T Finance share of the rights issue if you currently hold 5 or more equity shares of the company. Once eligible, you will also be entitled to preferential consideration for the allotment of an additional L&T Finance share if you apply for stocks beyond your rights entitlement. However, this will be subject to the availability of shares after allocating the rights entitlements applied by all other shareholders.
Prospects of L&T Finance Ltd
L&T Finance expects a month-on-month (m-o-m) improvement in its collection efficiency (CE). Further, favourable liquidity conditions in the country have reduced the cost of borrowing. This would, in turn, push the demand for credit and present growth opportunities to L&T Finance. In addition, the company’s strong balance sheet and an increase in its disbursements would also help L&T Finance Ltd deal with COVID-related uncertainties and help grow its business.