L&T Finance Holdings slumps 5% after Kotak downgrades stock to ‘sell’

Shares of L&T Finance Holdings declined 5 percent after Kotak Institutional Equities downgraded the stock to ‘sell’ from ‘reduce’.

“We believe LTFH’s challenges of low near-term growth and subdued RoE (Return on Equity) don’t have instant fixes,” the brokerage firm said in a note to clients.

Even as the brokerage firm has assumed that the stressed book is currently fully provided for, it sees asset quality challenges in select segments. Moreover, capital issuance during Covid and prolonged period of no loan growth are main reasons for structural challenges to profitability that L&T Finance Holdings faces today, elaborated Kotak Institutional Equities.

At 12:27pm, shares of the company were trading 2.8 percent lower at Rs 133.40 on the BSE.

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The stock has rallied 21 percent in the past one month on the back of low valuations as against high-performing NBFCs, reduction in the wholesale book and some visibility of turnaround. After the announcement of the new CEO, the scrip gained further 7 percent.

L&T Finance Holdings made an announcement during the weekend regarding the appointment of Sudipta Roy as the chief operating officer. Starting from January 2024, Roy will take on the role of the managing director and chief executive officer of the company. In April 2024, Dubhashi will retire from his position.

Roy is a consumer banking and payments professional, joining from ICICI Bank. “He seems to be focused on high-yield segments such as unsecured assets (the new focus segment for LTFH) and contemporary segments such as millennial and API banking,” Kotak Institutional Equities pointed out.

Yet, the domestic brokerage firm highlighted that apart from the limited information on the CEO, a turnaround in L&T Finance Holdings would be a long process due to the structural constraints. The brokerage also added that its profitability will take time to improve.

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