L&T Finance

L&T Finance tumbled down after it announced numbers for Q3FY13. It reported a consolidated net profit at Rs.295 crore, up almost three times on YoY but the market was too enthused with this surge as this was thanks mainly to one time gain of Rs.175 crore, which included profit on sale of stake in Federal Bank and costs related to integration of Fidelity's mutual fund business.  And excluding this gain, net profit was up 27%, which was not bad at all. But the market felt let down with this 27% rise after seeing a 3 fold rise. Gross NPAs rose  to2.39% of loan assets v/s 2.20% on YoY and Net NPAs also increased to 1.56% v/s 1.25%. The increase in gross NPA was primarily contributed by infrastructure loans, corporate loans and construction equipment loans, as a result of stress in the economic environment. The performance, the 27% rise was led mainly by growth in loans and advance, which rose 31% on YoY at Rs.31230 crore.

The company was cautious about the future and stated that despite reform measures initiated by the Govt, tight liquidity, mounting fiscal/current account deficit is impacting the investment climate. It expects stress in the corporate sector to continue for some time and said that its margins will improve only when external, macro environment will improve. Hopefully, the rate cut and CRR cut, should ease the situation and we could see a better performance in Q4. On the other hand, post the performance, research firm Macquarie downgraded the stock to underperform rating, stating that the stock had outperformed the index by nearly 50% on hopes of getting a banking license. It said that the valuations are very expensive considering the losses in the AMC business and weak profitability. This weighed more heavily on the market than the Q3 numbers. A strong contender for getting the banking license, the stock is expected to remain in the spotlight in the days to come.