L&T Finance Holdings rights issue review - (Apply)

•    The company is engaged in the financial services segment.
•    With the merger of its subsidiaries, it mulls to emerge as a big player in the field.
•    The issue is priced at a discount of around 24.2% based on last traded price.
•    Shareholders may opt for subscribing this lucrative offer.

ABOUT COMPANY:
L & T Finance Holdings Ltd. (LTFHL) is registered with the RBI as a non-banking financial company - core investment company ('NBFC-CIC') conducting business through its wholly-owned Subsidiaries. LTFHL is one of the leading private sector non-banking financial services companies in India in terms of total Adjusted loans and advances outstanding (source: CRISIL Report), with Rs.98,822.84 crore of total loans outstanding as at September 30, 2020. It had quarterly average assets under management in Investment Management (mutual funds) business amounting to Rs. 63,057.20 crore as on September 30, 2020.

At the beginning of the Financial Year 2017, it launched a transformation strategy that targeted on identifying the 'Right Businesses', 'Right Structure', and 'Right People' to focus on growth, improved asset quality and profitability by leveraging on enhanced digital and analytics in future.

The company operates in the majority of states in India and has 206 branches in 199 cities across 21 states and one union territory, as of September 30, 2020. In addition, for microloans business, it has 1,446 meeting centres covering 294 districts across 16 states in India, as of September 30, 2020. As of December 31, 2020, it employed 22,381 employees.

The company focuses on restructuring and integrating the overall group structure to achieve one consolidated lending entity, which would allow it to increase exposure limits, reduce additional liquidity requirements and achieve cost efficiency, which will potentially create value for all the shareholders. As part of this model, the Company merged four of its Subsidiaries, with a view to achieving optimal utilization of capital and management bandwidth as well as to achieve operational efficiencies. In the Financial Year 2021, it has filed for the merger of three of its lending Subsidiaries, L&T Finance Limited ('LTFL'), L&T Infrastructure Finance Limited ('LTIFC') and L&T Housing Finance Limited ('LTHFC'), which would be implemented upon receipt of applicable approvals. The board of directors of wholly-owned Subsidiaries, LTFL, LTIFC and LTHFC, have approved the scheme of amalgamation of LTIFC and LTHFC with LTFL, at their respective meetings held on March 20, 2020, leading to the creation of a single unified lending entity with the appointed date of April 1, 2020 subject to requisite regulatory approvals ('Scheme'). The Scheme has subsequently been filed with the National Company Law Tribunal, Mumbai ('NCLT') to merge LTIFC and LTHFC into LTFL and is pending to be approved by the NCLT.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of certain commercial papers issued (Rs. 1150.00 cr.), infusion of funds in subsidy for the similar purpose (Rs. 600.00 cr.), the redemption of preference shares issued (Rs. 500.00 cr.) and general corporate purpose (Rs. 737.11 cr.), LTFHL is offering rights issue in the ratio of 17 shares for every 74 shares held as on record date of January 22, 2021. The company is issuing 461325021 equity shares of Rs. 10 each at a fixed price of Rs. 65 per share to mobilize Rs. 2998.61 cr. The issue opens for subscription on February 01, 2021, and will close on February 15, 2021. Post allotment, shares will be listed on BSE and NSE. LTFHL is spending around Rs. 11.50 cr. for this entire rights issue process.

Post Issue Company's current paid-up capital of Rs. 2008.12 cr. will stand enhanced to Rs.2469.45 cr. Based on the rights offer price, the company is looking for a market cap of Rs. 16051.40 cr. on post-issue paid-up capital.

For the information of shareholders, the present ISIN for Equity Shares: INE498L01015, BSE Code: 533519, NSE Code: L&TFH and for the rights issue entitlement the ISIN is INE498L20015

The issue is jointly lead managed by Axis Capital Ltd., BoB Capital Markets Ltd., Citigroup Global Markets India Pvt. Ltd., Credit Suisse Securities (India) Pvt. Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., ICICI Securities Ltd., Motilal Oswal Investment Advisors Ltd., SBI Capital Markets Ltd., UBS Securities India Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.   

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, LTFHL has posted total income/net profits of Rs. 13301.52 cr. / Rs. 2232.03 cr. (FY19), Rs. 14548.13 cr. / Rs.1700.26 cr. for FY20. For the first nine months of the current fiscal, it has reported a net profit of Rs. 682.91 cr. on total income of Rs. 10528.60 against a net profit of Rs. 1315.40 on total income of Rs. 11137.14 cr. for the corresponding previous period. Due to pandemic, the business of the company got affected for the first quarter. As on December 31, 2020, its NAV stood at Rs. 77.28.

For the quarter ended December 31, 2020, its gross NPA (gross stage 3 assets) has reduced to 5.12% from 5.94% and 5.19% for the quarter ended December 31, 2019, and September 30, 2020, respectively. Similarly, for the quarter ended December 31, 2020, its net NPA (net stage 3 assets) reduced to 1.92% from 2.67% for the quarter ended December 31, 2019. Thus the company's asset quality has shown improvements. LTFHL continues to maintain a strengthened balance sheet by carrying additional provisions (over and above provisional coverage ratio and standard asset provisions) for economic uncertainty of Rs. 1,739.22 crore, being 1.90% on the standard book as of December 31, 2020. The weighted average cost of borrowings as of December 31, 2020, stood at 7.82%.

SCRIP MOVEMENT:
The scrip turned ex-right on January 21, 2021, with the closing of Rs. 95.55 per share against its last cum right quote of Rs. 103.85 per share on January 20, 2021. The last traded price of the scrip on 28th January 2021 is Rs. 85.75 indicating market cap of Rs. 21175.50 cr. on fully diluted equity post rights issue. Based on the last traded price, the issue is at a discount of 24.2%. It has marked 52 weeks high/low of Rs. 124.62/Rs. 42.78.