L&T Finance Holding to offload PE portfolio in FY17

After rationalising its workforce on performance review, L&T Finance Holdings Ltd plans to sell private equity and proprietary investments worth over Rs 800 crore to unlock value in current financial year.

It will also consolidate its retail financing business under one corporate body. At present the retail business, including the two-wheeler segment, is being managed through three entities. It expects to complete this during the next six months.

Referring to the PE and prop investments, Dinanath Dubhashi, deputy managing director, LTFH said they do not yield income. While there is time line in mind, the company will not offload investments just to stick to deadlines.

The paring down of investment is part of a strategy to improve the use of resources, enhance return on equity (ROE) and profitability. The ROE has been 10-11 per cent for last three-four years and the plan is to move higher (about 17-18 per cent) over three or four years. There are now clear milestones which will be reviewed each quarter, Dubhashi said in an analysts call.

L&T Finance Holding will focus on cost optimisation and re-allocation of capital towards focused businesses. Elaborating on this reorganisation and cost optimisation Y M Deosthalee, Chairman & Managing Director told Business Standard there is high cost attached to having separate set up. Also managerial talent can be used gainfully under revamped structure.

About the rationalizing of manpower, Deosthalee maintained that the performance review and business portfolio rationalization have coincided this time. Many people left as outcome of that exercise. The company continues to hire in segments that are growing.

Following business portfolio review, L&T's financing unit will now focus on three businesses - wholesale, rural and housing covering seven products. Earlier, it had portfolio of 17 products.

The company has been able to keep asset quality stable despite a significant cash flow pressures in the rural markets. Its gross non-performing assets (150-day dues norms) stood at 3.05 per cent (Rs 135 crore) at end of March 2016 as against 3.08 per cent (Rs 1,428 crore) in March 2015.

A strategy of being a sustainable financial services player is playing out positively. There is a consistent healthy growth in assets and profitability over the last 8 quarters, with stabilization in the overall asset quality, Deosthalee said.

The provisioning policy takes into account long term portfolio behavior based on the probability of default and loss given default of the portfolio. The company carries provisions worth Rs 238 crore in excess of Reserve Bank of India norms.

Its loans and advances grew by 22 per cent to Rs 57,831 crore at end of March 2016 from Rs 47,232 crore at end of March 2015. Its net profit for year ended March 2016 (FY16) rose by 16 per cent to Rs 857 crore from Rs 736 crore in FY15. The total income grew to Rs 7,471 crore in Fy16 from Rs 6,337 crore in FY15.