L&T Finance Holdings Ltd

BSE: 533519 | NSE: L&TFH | ISIN: INE498L01015 
Market Cap: [Rs.Cr.] 11,582 | Face Value: [Rs.] 10
Industry: Finance & Investments

 Discuss this stock

Management Discussions

Management Discussion And Analysis

Macro-economic review and outlook


FY13 was a challenging year for the global economy, and in particular, for India.Continuing the downturn, which started in FY12, macro- economic variables furtherdeteriorated and the economy witnessed a broad-based slowdown in FY13, with GDP growing at5% - the slowest in 10 years.

As per the economic survey conducted by the Ministry of Finance, the economy isprojected to grow at an optimistic 6.1 - 6.7% for FY14, signalling that the economy islooking up. The International Monetary Fund has also projected a 6.2% growth for FY14. Toachieve this growth, the country would need a normal monsoon ensuring agriculture growthand lower interest rates, along with improved exports and raised industrial and servicesactivity.


The Wholesale Price Index (WPI)-based inflation fell to 5.96% in March 2013 from 6.84%in the month of February 2013. This was the first instance of WPI going below the 6% marksince November 2009. Core inflation continued its downward momentum and food inflationalso fell due to lower inflation in the prices of fruits, vegetables and protein-foods.The easing of core inflation is expected to set the stage for monetary easing goingforward.

Interest Rates

Pursuant to the RBI's repo rate cut, government bond yields softened in FY13, despitean increase in government borrowings and lower FII inflows into the debt market. Led byaggressive expenditure cuts since September 2012, government borrowings for 2012-13 alsoturned out to be lower than envisaged earlier. In the current fiscal, further reduction inthe repo rates and decelerating inflationary pressures will help ease the 10-year bondyields from current levels.


Growth in bank credit remained subdued at 14.0% in FY13, as compared to 17.0% in FY12.Credit disbursement to most industry sectors softened while a few sectors witnessed creditgrowth - chemical and chemical products, food processing, rubber, plastic and plasticproducts, petroleum, coal products and nuclear fuels, wood and wood products and leatherand leather products. IIP growth during FY13 was 1%, consequent to a host of challengessuch as judicial stays on mining, delays in environment clearances, bottlenecks in landacquisition and constrained fuel supply. However, industrial growth bounced back to 2.5%in March 2013 courtesy better performance in the manufacturing and power sectors andhigher output of capital goods. This suggests that the investment cycle could be bottomingout and that growth could pick up soon.

Retail, corporate and housing finance

Our retail and corporate finance businesses comprise loans for the purchase of assets -construction equipment, commercial vehicles, farm equipment, cars and two-wheelers - andworking capital loans for Small and Medium Enterprises, term loans for medium and largecompanies and microfinance. These businesses are led by L&T Finance Limited, L&TFinCorp Limited and Family Credit Limited. L&T Housing Finance Limited, earlier knownas Indo Pacific Housing Finance Limited, runs our housing finance business. Both thesecompanies, Family Credit Limited and L&T Housing Finance Limited, were acquired duringFY13. All the above companies are wholly owned subsidiaries of L&T Finance Holdings.

Business overview

Construction Equipment Industry

The construction equipment (CE) industry witnessed a drop of around 20% in salesvolumes, mainly due to the ban on mining and pending environmental clearances in Orissa,Karnataka and Goa. Delays in capital infusion and development policies also led tonegative sentiments. Sales volumes for backhoe loaders - a main constituent of the CEindustry - dropped approximately by 7%, excavators by 15%, wheel loaders by 25%,compactors by 15%. The drop in cranes and concrete equipment was over 40%.

In line with the industry’s de-growth, our construction equipment business alsoexperienced a 19% dip in the number of units financed.

Commercial Vehicle Industry

Medium and Heavy Commercial Vehicles (M&HCV>12T)

Since the M&HCV category draws its demand from the economy, it is prone tocyclicality. The M&HCV segment was hit the hardest by slowing industrial activity,weak investment sentiment and the addition of significant fleet capacity over the pastthree years. While the buses segment witnessed a healthy off-take by private operators andstate transport undertakings, contraction in demand for higher tonnage trucks was thesharpest - over 30%. These factors shrunk overall M&HCV sales by 28% and as a result,we experienced a decrease of 32% in the units financed.

Light commercial vehicles (LCV up to 12T)

The LCV segment is categorised into up to 3.5T (Small Commercial Vehicles or SCV) and3.5T to 12T vehicles. Both categories were expected to benefit from the hub and spokemodel of the transportation business, but the slowdown and overall negative sentimentaround the CV industry impacted the segment negatively. Sales dropped by close to 14% andLCV goods vehicle sales in particular, dropped by almost 18%.

On the other hand, the SCV category benefitted from the hub and spoke model, newgovernment restrictions banning overloading of cargo vehicles and restricted entry ofheavy commercial vehicles into cities. The popularity of early movers in this segmentprompted many OEMs from the three-wheeler and LCV segments to foray into the SCVfour-wheeler market.

As compared to the previous year, our business witnessed a 24% increase in unitsfinanced in the LCV segment and a 13% increase in the SCV four-wheeler segment.

Passenger vehicle industry

The Passenger Vehicle (PV) industry comprises 3 main segments – passenger car,utility vehicles(UV) and vans. During FY13, total PV sales grew by around 2%, driven by a52% growth in the UV segment. Car sales dropped by 7% while van sales increased by just apercent.

We continued to expand our presence in the Passenger Vehicle segment, which resulted ina 28% growth in the units financed.

Farm equipment industry

The Indian tractor industry is the largest in the world by volume. Improvedagricultural growth, combined with factors such as increasing land holdings, betterminimum support price as well as labour shortage, has propelled the demand for farmequipment over the last few years.

In FY13, the Indian tractor industry experienced a 2% de-growth due to delayed monsoonand drought in parts of India. The Southern markets of Andhra Pradesh and Tamil Naduaccounted for a drop of over 30% and the West - Gujarat, Maharashtra and Karnataka -witnessed a drop of around 25%. Alongside, the harvester market took a hard hit of over50%, with approximately a 75% drop in the South alone. On the other hand, Central Indiaaccounted for growth - over 30% in Madhya Pradesh and over 20% in Bihar and Rajasthan.This was due to an increasing need for farm mechanization in these states. L&T Financeoutperformed the growth of the market by registering a growth of 3% in tractor volumes.

Two-wheeler financing

Two-wheeler financing business is carried out by Family Credit Limited. The two-wheelerindustry is broadly categorised into three segments – motorcycles, scooters andmopeds. The industry witnessed a demand slowdown that was consistent with other segmentssuch as passenger and commercial vehicles. The scooter segment showed healthy growth tillFebruary 2013, but slowed down thereafter, and motorcycles, the largest segment, wasalmost flat as compared with the last year.

Corporate finance

The Corporate Finance Group within L&T Finance provides financial products andservices to a wide array of companies - from small and medium enterprises to largemultinational companies and is structured as follows:

Corporate loans and leases:

Our offerings include short term asset-backed term loans, unsecured term loans,receivable discounting, financial and operating leases. In FY13, disbursement growth incorporate lending weakened as borrowers did not undertake new projects due todeterioration in the credit outlook across several sectors. A few borrowers alsoexperienced cash flow issues, which strained the existing portfolio.

Capital market products:

Loans against shares and IPO funding are two key offerings in this segment. As volatilemarket conditions prevailed during most of FY13, disbursement growth was driven by ourcapability to structure deals to suit our clients’ requirements and the preferencefor consolidation of debts for the long term by a few promoter groups.

Strategic asset finance:

This segment was formed to primarily target large ticket customers in the constructionequipment and commercial vehicles space. Demand was impacted in FY13 due to a slowdown inkey infra sectors and so we steadily built a capability in niche asset categories such astrans-shippers and off-shore supply vessels, etc.

Supply chain finance:

This segment provides vendor and dealer finance as working capital loans and facilitiesto entities in the supply chain for a variety of industries. FY13 saw anchor companieswitnessing volatility in order book positions, which led to re-scheduling of theirprocurements from suppliers. Several anchors and purchasers, particularly in theconstruction, power and copper industries experienced repayment stress.

Despite the challenges, L&T Finance was able to maintain disbursement growth aswell as portfolio quality.

Housing finance

Our housing finance business is carried out by L&T Housing Finance Limited. In themortgage industry, housing finance penetration in India (mortgage loans as a percentage ofthe GDP) increased from 4.5% as on March 2004 to 7% as on March 2007, but has remained atthese levels since then. This figure is lower than the penetration rates in developedcountries and therefore presents significant scope for growth in the future. The industryis strongly linked to the realty market and due to strong off-take in launches ofresidential property, mortgage demand is expected to improve across key markets in theshort term, though there are concerns over price discounting and rate cuts.

Though institutional financing for housing in India is dominated by commercial banks,trends are increasingly favouring Housing Finance Companies (HFC) and they continue togain market share. The key growth drivers for HFCs are superior service levels,diversified sourcing channels, focus on niche segment such as the self employed segment,affordable housing and higher ticket size loans.

Post the acquisition of Indo-Pacific Housing Finance Limited in FY13, all structuraland regulatory changes involving the post-merger integration and name change wereconcluded smoothly and key policies were reviewed and aligned with L&T FinanceHoldings, setting the stage for business growth.

In a consumer centric business, efficient distribution channels and marketing areessential to reach a wide customer base. Multiple distribution channels including worksitemarketing are being set up and some of these efforts are already contributing to thecurrent business.



L&T Finance has a credit policy and credit risk management framework in place,supported by credit guidelines for different products, which are issued from time to timein consultation with the Risk Department. Various aspects of credit risk management areaddressed by different processes and teams within L&T Finance, and are designed tomanage risks at different stages of the financing process, i.e. both pre- andpost-disbursement.

The business and credit review functions operate individually to manage credit riskbetter. The credit risk team is independently responsible for review of all creditrequests, whether they originate from the retail or corporate finance group. The Head ofCredit Risk reports to the Chief Executive.

L&T Finance has a centralized credit team, which is responsible for the evaluationand sanctioning of loan proposals across both, our retail and corporate finance groups.All new products developed are vetted by the credit team and approved by seniormanagement.

In the retail business, while scorecards are important, proposals are reviewed by thecredit team and all relevant parameters that help determine the credit-worthiness of aprospective borrower are taken into account. The focus of the credit decision is the assetbeing financed, related cash flows and the risks associated with the asset and theborrower.

The business team prepares the credit proposal, which is designed to capture relevantaspects of the loan proposal that are required for evaluation and authorization of a loan.Approval and deviation parameters have been defined, which assist in proposals beingreviewed by relevant delegation holders.

In the corporate finance business, owing to larger ticket size of loans, detailedappraisal notes are prepared by the business team, which cover the following aspects of aloan proposal relevant to the borrower:

Industry: nature of industry, regulations, growth potential and entrybarriers

Market Position: size of the company and order book details

• Operational Efficiency: competitiveness and technical expertise

Management Quality: experience, promoter background and past track record

Financial strength: balance sheet size, key ratios and financial flexibility

These parameters and their constituent elements are indicative and could vary from dealto deal.

In the case of asset finance loans, the asset being financed forms the basis ofsecurity for the loan or advance extended. Further, the asset value and income-generatingcapability forms an integral component of the credit assessment process. For all cases,due diligence comprises the Know Your Customer (KYC) process, credit references andbanking history.

Following the preparation of an appraisal note, a proposal is reviewed by therespective approving authorities (based on the authorization matrix) for a decision. Forroutine cases, the review of documents is a pre-defined process put together by the legaldepartment; however, documents related to complex deals or a special condition case arereviewed and vetted by the legal team before finalisation and execution.

For housing finance, credit underwriting is done through a hub and spoke model, whichensures efficiency and cost optimization. Credit appraisal policies facilitate businessgrowth while managing credit risks associated with the loans. The policies also facilitateflexible product design and delivery to meet the needs of our customers.

Risk control unit

During the year, the Company set up a Risk Control unit that reviews creditapplications, collection and branch processes to ensure that the business process is inline with the organisational policies and procedures. The findings and observations of theteam are used for periodic process improvements.

Information technology

New initiatives undertaken during FY13 are:

On-field receipt issuance via a mobile phone in order to providenear-instant visibility of collections made on the field. This initiative was rolled outacross seven branches on a pilot basis and is expected to roll out to all major branchesin FY14

Deployment of multiple outbound customer communication processes andtechnology solutions to ensure customer satisfaction

Collection and recovery

The Asset Management Group (AMG) has been formed to handle stressed assets, primarilyfor the retail business, across lending entities, given the growing book size of thebusiness. This helps the business team to focus on business generation and take care ofroutine collections, while the expert team handles difficult cases.

Provisioning policy

The provisioning and write-off policies of the retail business entities are morestringent and conservative than regulatory prescriptions. We believe this will ensure thatlosses in any given year will not have a significant impact on profitability for years oflow asset growth.


The Company’s operations are managed out of three locations - Mumbai, Chennai andHyderabad - and are broadly structured into three units: Loan Acquisitions, Loan Servicingand Business Process and Excellence. A few activities are outsourced to manage operatingcosts and better utilisation of internal resources.

Infrastructure finance

Our Infrastructure Finance business is carried out through L&T InfrastructureFinance Company Limited (L&T Infra), a wholly owned subsidiary of the Company.

FY13 has been a challenging year for the business and the following factors posed achallenge to infrastructure development:

Inadequate fuel supplies to power generating plants

Supply logistics problems, which hampered timely and economicaltransportation of fuel to power generation plants

Bottlenecks in regulatory clearance (environmental, forest etc.) and aslowdown in the land acquisition process

Mounting dues from state electricity boards, which placed a tremendousstrain on the working capital of power generating companies

Reduction in traffic on key road stretches, which placed additional pressureon the cash flows of the developers

Muted response to the re-auction of spectrum following the SupremeCourt’s licence cancellation order of February 2012. Nearly half of the spectrumblocks found no takers.

Infrastructure financiers have found it difficult to recover dues from developers andcontractors. The situation was the direct result of over-leveraged positions, whichdevelopers had resorted to in previous years, riding on optimistic projections ofincreasing volumes and revenue.

The government envisages an investment of one trillion dollars in developing India'sinfrastructure in the Twelfth Plan period. It is expected that about 47% of this amountwill be from the private sector. Total infrastructure investment is estimated to haveincreased from 5.7% of GDP in the base year of the Eleventh Plan to about 8% in the lastyear of the Plan. A large number of Public Private Partnership (PPP) projects have takenoff and many are currently operational. The Twelfth Plan is expected to continuecatalysing the pace of infrastructure investment as this is critical to sustain andaccelerate growth.

To expedite the process of approvals, the Cabinet Committee on Investments (CCI),chaired by the Prime Minister, was formed towards the end of 2012 to focus on projects of` 1,000 crores and above. It is reported to have cleared projects worth `74,000 crores asat end March 2013.

Sustained efforts to clear bottlenecks and facilitate project completion - e.g. fasterland acquisition, easier clearances and fuel supply for completed power projects couldalleviate some of the risks at the project level. At the same time, we believe that therevival of the sector’s fortunes will not be significant because the process ofaddressing fundamental challenges through concrete and sustained on-the-ground actions torestore credit quality is likely to be formidable.


During FY13, existing power generation plants experienced coal supply constraints andsuffered due to coal shortage. A number of mines were declared no-go areas, whichadversely affected utilization of existing generation capacity. Lack of transportationlogistics for coal was another inhibiting factor. The problem was further compounded bythe reluctance of state distribution companies to sign PPAs (Power Purchase Agreements).

In the Eleventh plan, base load power demand grew at a CAGR of 6.6%. The demand growthwas hampered mainly due to lower capacity addition, inadequate transmission infrastructureand lower off take by state distribution companies.


NHAI was able to award only about 10% of the targeted 9,500 kilometres of road projectsin FY13. As per estimates, many key road stretches are facing a reduction in traffic byabout 5-7%, which is going to put additional pressure on developers’ cash flows.

These issues notwithstanding, national highways and state roads would attract majorityof the total investments followed by roads in rural India. Also, private participation instate roads is expected to gradually increase over the next 5 years. This would be backedby state government initiatives, which are aimed at improving the policy framework andtendering additional projects on the BOT model.


During FY13, 42 projects (both PPP and non PPP) were awarded by the Ministry ofShipping (MoS). Although there has been an increase in the pace of project awards, aplethora of execution challenges continue to afflict the sector, preventing thetranslation to available capacity. Improvement of operating standards are still expectedto be a challenge though a redeeming feature is the new security clearance policy that hasbeen framed by the MoS to ensure time-bound security clearances for port projects andoperators. On the regulatory front, efforts to free major ports from tariff jurisdictionhave picked up.

In the recent past, the MoS has been contemplating major policy changes to improve theinvestment climate and speed up the pace of capacity expansion at major ports. If thiscomes through, it could be a major regulatory shift for the sector and could bring asignificant upside to major port entities and terminals.

In the port services sector, the container train business has come under pressure dueto a steep hike in haulage charges by the Indian Railways - a cumulative increase of 31%during December 2012 and February 2013. Further, moderation in EXIM container cargomovement and low competitiveness vis--vis road movement has further made the operatingconditions tough for container train operators.


A slower GDP growth did not significantly affect the Indian aviation industry in FY13.Airline carriers slashed fares rapidly in order to gain market share. Growth over the pastfive years was mainly due to discounts offered by low-cost carriers, coupled with anincrease in consumers' disposable incomes. Domestic passenger traffic handled at airportsgrew at a CAGR of 11% from 2006-07 to 2011-12.

L&T Infra - overview

L&T Infra is positioned as a financial solutions platform catering to the entirevalue chain of infrastructure development and is committed to providing appropriatefinancing to its diverse client base. The Company commenced business operations in January2007 with project financing and has expanded its offerings to cover equity, debtunderwriting and syndication and private equity. A broad spectrum of services comprisinginnovative products and financing structures helps it deliver value propositions tocustomers. Pursuant to this strategy, the institution has developed expertise along thevalue chain of infrastructure financing, and over the years, has extended its operatingplatform from fund-based to fee-based businesses across infra and allied sectors.

In the pursuit of sustainable growth, L&T Infra has been investing in manpowerdevelopment, upgrading systems, technology and processes. The Company’s endeavour isto engage with policy makers and regulators on an on-going basis in order to make suitablesuggestions to the government and regulators on policy matters.

L&T Infra’s business proposition is not confined to providing finance, butextends to advising customers on diverse financing structures, business planning, riskmitigation and enhancing sustainability. It has followed a proactive engagement approachwith affected borrowers and co-lenders to identify and manage incipient stress, which hashelped in containing risks and improving overall asset quality.

The Company has a qualified and experienced management team and the emphasis is onacquiring talent, skill building, enhancing knowledge and refining it to meet clientneeds. It has leveraged the experience, expertise and command that the parent L&TGroup holds over the complex and technical world of infrastructure and this has helped itto stand apart in the market place.

L&T Infra was classified as an Infrastructure Finance Company (IFC) by RBI in July2010, and notified by the Government of India as a Public Financial Institution (PFI)later in June 2011. Over time, L&T Infra has witnessed its approvals, disbursementsand assets increase at a healthy pace and despite FY13 being a very difficult year,L&T Infra posted appreciable growth, which is a validation of its focused growthstrategy.

In FY13, L&T Infra’s pioneering leadership in financing solar power projectsin India was recognised by Asian Development Bank (ADB). This was by way of the ADBawarding accreditation to L&T Infra as its partner in India for financing solar powerplants for the private sector. The ADB’s partial credit guarantee facility being madeavailable to L&T Infra will entail ADB sharing 50% of the payment default risk onL&T Infra loans provided to the eligible solar project developers.

In terms of the Loan Assets portfolio, L&T Infra’s business in FY13 continuedits commitment and focus on infrastructure sectors - comprising power, roads, telecom andports among other segments. Given the continuing deficit in the power sector, it remainsto be a priority sector for L&T Infra in terms of exposure.

With challenges in fuel and fuel logistics still continuing, L&T Infra consciouslydecided to calibrate its growth in the coal thermal sector and focused on emerging sectorslike renewable energy as a way to maintain its presence in the power sector. L&T Infrabelieves that such an effort hedges the portfolio well. The thrust on renewable energyassets, at 21% of total outstanding, forms the single largest part of the power portfolio.Almost all renewable energy projects financed in FY12 and FY13 by L&T Infra havecommenced commercial operations, thereby enhancing the overall quality of its portfolio.

L&T Infra has continued its focus on the road sector, with an emphasis on projectswith bid prices assessed for their reasonableness. With not many road projects beingtendered out in FY13, the focus was to offer competitive financing to operational roadprojects that were supported by healthy traffic and cash flows. A substantial 60%(percentage share of outstanding) of road projects are operational and have demonstrated asteady growth in cash flows, backed by both traffic as well as the consequence ofinflation linked toll.

In FY13, L&T Infra cautiously and very selectively added telecom projects(including networks and telecom towers) to its portfolio, with a focus on highly ratedclients with a sound promoter backing. Further, as a conscious strategy to diversify itscustomer base and enhance the overall portfolio quality, L&T Infra targeted a fewcorporate clients with better credit rating - albeit offering relatively lower returns inthe near term. Such projects are expected to achieve higher returns on the back ofimproved operating parameters in the medium term.

L&T Infra’s concentration risk with respect to single borrower and singlepromoter group remains comfortably low, with the top 10 borrowers and promoter groupsconstituting 19% and 28% of L&T Infra’s total exposure respectively, as on March31, 2013.

New focus areas

Energy efficiency and renewable energy are the twin pillars of a sustainable energyframework. Renewable energy technologies are essential contributors to sustainable energyas they generally contribute to world energy security, reducing dependence on fossil fuelresources, and provide opportunities for mitigating greenhouse gases. L&T Infra hascommitted to support the harnessing of non-conventional renewable sources of energy. Inthis pursuit, FY12 marked an entry into two new renewable energy sectors - solar and windpower.

In FY13, L&T Infra reinforced its commitment to the sector by placing a new thrustand by taking fresh exposures on wind power generation. L&T Infra has maintained itsleadership in financing of debt for solar power projects. Although this is a sector thathas had limited operational, commercial and financing experience in India till recently,worldwide experience indicates that careful assessment, prudent selection of projects,equipment suppliers and EPC contractors with adequate contractual safeguards, fallingequipment costs and PPAs with satisfactory feed-in tariffs, could result in impressivegains in terms of sustainable power output and returns to investors and lenders.

In India, there is an imperative need to develop power transmission infrastructure inorder to facilitate efficiency in power utilization. FY13 marked the entry of L&TInfra in financing power transmission projects. Given inadequate capacity, this sector isexpected to offer tremendous growth potential going forward.

The recent revision in the definition of "infrastructure" by RBI -harmonizing it with the master list of infrastructure sub-sectors notified by theGovernment of India - has added new sectors like fertilisers, education and healthcareamongst others to infrastructure. This provides an opportunity for L&T Infra toexplore projects in these sectors depending upon our risk appetite.

Financial advisory services

The Financial Advisory Services (FAS) Group at L&T Infra was started in April 2008to assist its clients formulate business plans by reviewing critical assumptions, identifyand evaluate various options for raising project finance, prepare deal collateral andarrange funds from the financial markets. The group generates fee income to complement theinterest income of L&T Infra and enables it to offer total solutions to suit itsclients’ needs, improving its visibility in the competitive project finance market.

The service portfolio includes pre-bid advisory, project finance advisory, bank loansyndication, bond placement, structured finance and debt syndication across infrastructureand non-infrastructure sectors, private equity syndication and M&A advisory. The FASGroup has grown from a three-member team in FY08 to a strength of 20 people with diverseexperience and has been focusing largely on project finance transactions. It hassuccessfully raised more than ` 30,000 crores from the financial markets to date invarious sectors including roads, ports, power, telecom and mining.

In FY13, L&T Infra continued with its policy of evolving innovative financialsolutions to suit a client’s requirements. Accordingly, it leveraged its expertise inproviding structured and innovative financing solutions and successfully closed its firstM&A advisory transaction in wind power assets.

Equity investments

L&T Infra is in the process of setting up a private equity asset managementplatform by mobilising funds from domestic and overseas investors. The initiative is inconsonance with the commitment to provide comprehensive financing solutions to theinfrastructure sector under one platform. Further, it would add to the fee incomepotential of the Company.

Risk and asset management

One of the key contributors to L&T Infra’s growth has been its ability tobetter manage risk in an uncertain and volatile market environment. Project financing issubjected to asset quality tests and meticulous evaluation processes - borrowers profile,their track record, order book and execution competence – and stringent provisioningnorms for affected assets have enabled us to exercise tighter credit controls. We havefollowed the approach of committee-based decision making - with representation fromindependent directors, senior management and advisors - to obviate judgmental errorsemanating from individual decision making, and have benefited by tapping the vastexperience of our independent directors.

The Risk and Asset Management Group (RAMG) in L&T Infra works independently ofBusiness under the framework set by the Company’s Risk Management Committee (RMC).The RAMG aims to establish and enhance L&T Infra’s operating policies, systemsand processes in order to align them to international best practices and changingorganisational and regulatory requirements.

The Group is also a knowledge centre for the organisation and disseminates informationwith respect to various policies and regulations, sectors as well as the portfolio’sperformance to stakeholders within the organisation.

With the current market scenario becoming more challenging, the focus on asset qualityand portfolio management has taken centre stage. The risk management process has fivecritical features: establishing a systematic culture of understanding risk within theorganisation, having a disciplined approach to risk assessment, using scientifictechniques for risk measurement, establishing standards for optimal risk mitigation andclose monitoring of all assets throughout their life cycle. The group has consistentlyleveraged its parent, L&T’s operational expertise in evaluating and mitigatingrisks in infrastructure projects.

L&T Infra’s investment and credit policy and risk management frameworktogether determine types of products, approval limits, credit approval processes, duediligence, credit appraisal and internal credit rating methodologies.

The RAMG also ensures close monitoring of the portfolio through the tenor of the loan.L&T Infra’s prudent credit risk management framework encapsulates specificmeasures to limit concentration risk including inter alia to borrowers, promoter groups,sector, sub-sector or geographical and state electricity boards.

L&T Infra has been following a conservative provisioning policy for affectedassets, over and above the RBI guidelines, and it has enabled it to exercise stringentcontrol on the asset quality.

Infrastructure debt fund: a strategic initiative

In order to accelerate and enhance the flow of long term funds to infrastructureprojects in India, the Government of India (GoI) announced the setting up ofInfrastructure Debt Funds (IDFs) in 2011-2012, broadly in line with the recommendations ofthe Deepak Parekh Committee. IDF, in the proposed format, is a new business modelglobally. The regulatory framework for this niche business is expected to enable:

• lower cost refinancing of projects

• reduction in the Asset Liability Management ALM related issues of banks

• freeing-up of exposure of banks to large/medium sized business groups/borrowers.

The Government has also taken the initiative to promote the IDF concept ininternational markets by conducting road shows in several countries. The importance of theIDFs has been reiterated in the Union Budget speech in February 2013.

L&T Infra has been proactively engaging with the government, regulators andindustry associations for providing policy inputs on infrastructure sector issues. In thisregard, concerted efforts were made to share its operating experience with the Ministry ofFinance, RBI and SEBI in order to facilitate evolution of the Infrastructure Debt Fund(IDF) concept and policy framework. L&T Infra continues to actively engage withindustry bodies such as CII, IMC and FICCI etc. by providing practical insights andrecommendations to foster a favourable environment for accelerated development ofinfrastructure in the country.

IDFs could be set up either through the mutual fund or NBFC route and L&T Infra isin an advanced stage of setting up an IDF under the NBFC route. IDF would complementL&T Infra's existing business by creating financing opportunities during the entirelife cycle of an infrastructure project.

Treasury Management

The economic situation in FY13 was volatile and fraught with uncertainties. It wasindeed a tight-rope walk to ensure availability of optimum and timely liquidity and alsoachieve growth in the overall size of the liability book at competitive cost of funds.Treasury was able to achieve and maintain well-diversified sources of borrowings, acrossinvestor classes and innovative structures, creating a debt composition which resulted inrelatively low weighted cost of borrowings.

The Company raised capital through the issue of competitively priced redeemablepreference shares in two tranches of an aggregate amount of ` 750 crores in March 2013 inorder to meet the capital requirements of operating subsidiaries. Both tranches received avery good response, demonstrating the favourable perception of your Company amongstinvestors.

In L&T Finance, with the gap between bank rates and market rates widening, thefocus was to shift from dependence on bank loans to raising market instruments. With theyield curve easing at the shorter end, there was an attempt to benefit from this movementby raising commercial paper.

Since L&T Infra is into project lending where the funding done is for longerperiods, it is imperative that duration mismatches are monitored diligently and a suitableequilibrium is maintained between the duration of assets and liabilities. In FY13, L&TInfra was able to capitalise on the opportunities afforded by the market - by successfullyraising funds through debentures of long tenor with Foreign Financial Institutions (FIIs)and Domestic Financial Institution (FIs) – apart from accessing loans from thebanking system. L&T Infra was also able to raise External Commercial Borrowings (ECB)in FY13 at competitive rates reaffirming the faith of foreign investors. Timely issuanceof Tier II bonds enabled improvement in CRAR.

After the acquisition of the new companies, L&T Housing Finance and Family Credit,most of the old loans were pre-paid and replaced with fresh borrowings at lower costs.L&T Housing Finance adopted a combination strategy of bank loans and marketborrowings, which was aimed at reducing costs and maintaining ALM stability.

Investment Management Business

L&T Investment Management Limited acquired the Indian mutual fund business ofFidelity Worldwide Investment during the year. The transfer of schemes of Fidelity MutualFund was successfully completed on November 23, 2012. Several months of elaborate planningfor each functional stream ensured that the transition was seamless. This business mergeris the largest in the asset management industry with the transfer of nearly 2 millionfolios and large volumes of other data.

The transaction was unique as business and scheme mergers were done simultaneously.With this acquisition, L&T Mutual Fund achieved size and scale: a comprehensiveproduct range of 25 schemes across equity, fixed income and hybrid funds; proven trackrecord, a high quality team, branch network panning 56 cities and clients from more than200 towns and cities.


Despite high market volatility and poor investor sentiment, the Indian mutual fundindustry grew by 19% with overall assets under management closing at ` 701,443 crores asat March 2013 versus ` 587,217 crores for March 2012. (Source: Association of Mutual Fundof India website).

Against this backdrop, aided by the acquired business and subsequent new businessmomentum, L&T Mutual Fund's assets grew rapidly and stood at ` 11,389 crores as atMarch 31, 2013 versus ` 3,109 crores last year - an increase of 266%. The market share ofthe business grew from 0.5% to 1.6% based on the closing assets from March 2012 to March2013. The number of investor folios increased to 895,475 as of March 31, 2013 from 145,712as of March 31, 2012 - a six-fold increase in the customer base. Further, the PortfolioManagement Services (PMS) business remained steady with around ` 100 crores in assets fromover 1000 customers as at end March 2013.

Consolidated performance


L&T Finance Holding's income increased by 33% from ` 3,007.30 crores in FY12 to `4,006.46 crores in FY13. Operating income increased by 33% from ` 2,980.90 crores in FY12to ` 3,956.76 crores in FY13 and the interest income on loans and advances increased by33% from ` 2,811.69 crores in FY12 to ` 3,732.79 crores in FY13. This increase wasprimarily the result of a 30% increase in the business assets of L&T Finance Holdingsfrom ` 25,670.60 crores as on March 31, 2012 to ` 33,309.90 crores as on March 31, 2013.Fee income from various activities, mainly advisory and investment management increased by85% from ` 42.15 crores in FY12 to ` 78.10 crores in FY13.


Total expenditure increased by 39% from ` 2,323.06 crores in FY12 to ` 3,235.84 croresin FY13. Finance cost increased by 37% from ` 1,702.64 crores in FY12 to ` 2,332.41 croresin FY13 primarily as a result of increase in borrowings due to higher volumes of business.Operating expenses increased by 59% from ` 225.75 crores in FY12 to ` 360.01 crores inFY13 substantially on account of brand campaigns, professional fees, bank charges andbrand license fees. Allowances and write-offs increased by 49% from ` 83.44 crores in FY12to ` 273.44 crores in FY13 mainly on account of voluntary provisioning and write-offs.


For the reasons stated above, L&T Finance Holding's profit before tax increased by44% from ` 684.25 crores in FY12 to ` 988.61 crores (includes profit from exceptionalitems of ` 217.99 crores) in FY13. During the year, the Company sold its investments inFederal Bank Limited for a consideration of ` 361.69 crores, earning a profit before taxof ` 237.93 crores. Profit after tax increased by 60% from ` 454.80 crores FY12 to `729.19 crore in FY13.

Standalone Performance

On a standalone basis, L&T Finance Holding's income increased from ` 129.42 croresin FY12 to ` 200.67 crores in FY13, primarily as a result of increased dividend incomefrom subsidiaries. Operating income increased from ` 111.84 crores in FY12 to ` 171.98crores in FY13. Total expenditure increased from ` 40.52 crores in FY12 to ` 68.94 croresin FY13 substantially on account of finance cost for funding the Company’s operationsand expenses on branding. PAT consequently increased from ` 71.25 crores in FY12 to `311.33 crores (includes profit from exceptional items of ` 235.73 crores) in FY13.

Performance of material subsidiaries

L&T Finance Limited


Total income increased by 17% from ` 1,783.46 crores in FY12 to ` 2,079.40 crores inFY13 while interest income on loans and advances increased by 18% from ` 1,663.00 croresin FY12 to ` 1,956.25 crores in FY13. This increase was primarily the result of a 12%increase in the net loans and advances made by L&T Finance from ` 12,510.99 crores ason March 31, 2012 to ` 14,024.34 crores as on March 31,2013. The general growth in L&TFinance's business was primarily due to robust business in the rural products segment andcapital market products.

The average volume of L&T Finance's loans and advances, defined as the average ofopening and closing year-end balances of its outstanding loans and advances for the FiscalYear, increased by 18% from ` 11,250.49 crores as on March 31, 2012 to ` 13,267.66 croresas on March 31, 2013.


Total expenditure increased by 19% from ` 1,488.49 crores in FY12 to ` 1,765.99 croresin FY13, primarily due to an increase in finance cost. Interest and other finance chargesrelated to L&T Finance's borrowings increased by 19% from ` 1,010.06 crores in FY12 to` 1,206.22 crores in FY13 primarily as a result of increased borrowings due to higherlevel of activity.

Operating expenses increased by 19% from ` 176.92 crores in FY12 to ` 209.71 crores inFY13, primarily due to an increase in professional fees and bank charges. Credit losseshave increased by 28% from ` 146.22 crores in FY12 to ` 187.65 crores in FY13 due toforeclosures and write-offs.


For the reasons stated above, L&T Finance's profit before tax increased by 6% from` 294.97 crores in FY12 to ` 313.41 crores in FY13. Profit after tax increased by 6% from` 199.01 crores in FY12 to ` 211.03 crores in FY13.

L&T Infrastructure Finance Company Limited


Total income increased by 35% from ` 1,183.90 crores in FY12 to ` 1,599.78 crores inFY13. This increase was primarily the result of a 35% increase in the net loans andadvances made by L&T Infra from ` 10,456.72 crores as on March 31, 2012 to ` 14,113.80crores as on March 31, 2013, which resulted in an increase in interest income on loans andadvances by 35% from ` 1,127.79 crores in FY12 to ` 1,523.56 crores in FY13. In addition,fee income increased by 50% from ` 29.96 crores in FY12 to ` 44.99 crores in FY13. Thegeneral growth in L&T Infra's business was primarily due to robust business in theroads and renewable power segment.

The average volume of L&T Infra's loans and advances, defined as the average ofopening and closing year-end balances of its outstanding loans and advances for the FiscalYear, increased by 40% from ` 8,838.58 crores as on March 31, 2012 to ` 12,364.95 croresas on March 31, 2013.


L&T Infra's total expenditure increased from ` 805.75 crores in FY12 to ` 1,129.83crores in FY13, primarily due an increase in interest and finance charges and voluntaryprovisions. Finance cost increased from ` 717.44 crores in FY12 to ` 978.38 crores inFY13, primarily as a result of higher borrowing on account of enhanced business volumesand enhanced gearing.

Operating expenses increased from ` 34.56 crores in FY12 to ` 49.51 crores in FY13,primarily due to an increase in brand license fees, rent, IT expenses and professionalfees. Provisions and contingencies increased from ` 33.23 crores in FY12 to ` 72.39 croresin FY13, primarily on account of an increase in voluntary provisions.


For the reasons stated above, L&T Infra’s profit before tax increased by 24%from ` 378.16 crores in FY12 to ` 469.94 crores in FY13. Profit after tax increased by30%from ` 263.95 crores in FY12 to ` 344.21 crores in FY13.

Cautionary Statement

Certain statements in the Management Discussion and Analysis describing theCompany’s objectives, predictions may be "forward-looking statements"within the meaning of applicable laws and regulations. Actual results may varysignificantly from the forward looking statements contained in this document due tovarious risks and uncertainties. These risks and uncertainties include the effect ofeconomic and political conditions in India, volatility in interest rates, new regulationsand government policies that may impact the Company’s business as well as its abilityto implement the strategy. The Company does not undertake to update these statements.


Peer Comparison

Company Market Cap
(Rs. in Cr.)
I D F C 17,937.67 9.25 1.33 10.51 13.8 11.3 3.91
Shriram Trans. 16,945.67 12.79 2.36 8.06 20.6 13.4 4.10
M & M Financial 13,121.06 14.75 2.94 9.47 23.8 14.1 4.43
Bajaj Finserv 12,429.63 151.07 5.16 152.15 3.5 5.5 0.00
L&T Fin.Holdings 11,582.35 38.51 3.28 33.87 3.2 3.8 0.10
Vatsa Corpn 10,250.98 0.00 1.35 0.00 0.0 0.0 0.00
Indiabulls Hous. 9,541.92 6.76 1.94 0.00 41.7 19.4 6.30
Reliance Capital 9,187.79 29.64 0.80 9.53 5.9 9.4 1.73
Bajaj Fin. 8,838.18 12.61 2.62 8.76 21.9 14.5 4.33
Sundaram Finance 7,888.10 18.24 3.78 8.20 21.2 13.6 5.28
Shri.City Union. 7,202.22 14.42 3.02 7.85 22.6 15.3 5.60
Muthoot Finance 6,603.43 8.06 1.77 6.74 30.2 17.0 6.52
KSK Electricity 5,418.99 0.00 9.36 0.00 0.3 0.4 0.00
India Securities 4,926.38 0.00 57.40 0.00 0.0 0.0 1.78
DSP Merrill Lyn 4,689.56 48.37 2.23 0.00 4.7 7.2 0.01

Futures & Options Quote

Expiry Date
67.75 1.25  (1.9%)
Instrument: FUTSTK
Expiry Date: 24 Apr 2014
Open Price: 66.60
Average Price: 67.41
No. of Contracts Traded: 4,200,000
Open Interest: 30,656,000
Underlying: L&TFH
Market Lot: 4000
Previous Close: 67.75
Day’s High | Low: 68.35 | 66.40
Turnover (Cr.): 28.31
Open Int. Change: -1,588,000.00 ( [4.9]% )
View detailed F& O quotes >>

Key Information

Key Executives:

Y M Deosthalee , Chairman & Managing Director 

N Sivaraman , President & Whole-time Dir. 

R Shankar Raman , Director 

Shailesh Vishnubhai Haribhakti , Director 

Company Head Office / Quarters:
L&T House N M Marg,
Ballard Estate,
Phone : 91-22-67525656
Fax : 91-22-67525858
E-mail : igrc@ltfinanceholdings.com
Web : http://www.ltfinanceholdings.com
Sharepro Services India P Ltd
Samhita Complex
Plot No 13 AB
Saki Naka Andheri(E)


14 15 16 17 18 19 20
listNo IPO today
Economic Events
list No economic event today
list No result today