CARE AA rating retained for L&T Finance debentures

CARE has extended its 'AA' rating to L&T Finance Ltd's (LTF) non-convertible debenture instruments:

Instrument
Issue Size
(Rs Crore)
Outstanding Amount*
(Rs Crore)
NCD (2002 Series I)
60
20
NCD (2003 Series I)
30
25
NCD (2004 Series I)
30
30
NCD (2004 Series II)
40
40

Instruments carrying the 'CARE AA' rating are considered to be of high quality by any standards. They are rated lower than 'CARE AAA' securities because of somewhat lower margins of protection. Changes in assumptions may have a greater impact or the long-term risks may be somewhat larger. But, overall, the difference CARE AA vis-a-vis CARE AAA rated securities is marginal.

CARE has also retained the PR1+ (PR one plus) rating assigned to LTF's short term debt aggregating to Rs120crore, indicating superior capacity for repayment of short-term promissory obligations.

These ratings factor in the 100 per cent ownership of L&T and its demonstrated support over the years, improving asset quality and growth in its niche area — financing of construction equipment and tractor dealers of its affiliate. However, its ability to enhance profitability in a highly competitive business environment, improve recoveries from a legacy of corporate weak assets and maintain good recoveries from its tractor finance portfolio, which is a relatively new area of business, would remain key rating sensitivities.

LTF is a wholly owned subsidiary of L&T Ltd and is engaged in fund-based activities. Initially, LTF financed plant and machinery to the mid-sized corporate segment. From 1998, LTF started financing blue chip corporates as well as construction equipment. Now, it also provides supplies discounting facilities (mainly to L&T vendors), funding to dealers of L&T John Deere Ltd and end-users of tractors.

The construction equipment and tractor financing business is closely linked with parent company L&T, which supports LTF by infusing equity at regular intervals and providing back-up credit lines. With effect from April 1, 2003, three wholly owned L&T subsidiaries — L&T Netcom Ltd, L&T Equipment Leasing Ltd (LELCOL) and LTM Ltd, as well as LTF's subsidiary L&T Trade.com Ltd were amalgamated with LTF. The merger increased LTF's net worth by Rs31.09crore.

In FY 2003-04, LTF's total income was Rs78.20 crore (Rs64.3crore) and its PAT was Rs13.4crore (Rs6.1crore). As on March 31, 2004, LTF's asset base was Rs613crore (Rs541.8crore) and its net worth was Rs119.7crore (Rs74.9crore). LTF's ratio of net NPAs to net advances has reduced from around 4 per cent (FY 03) to around 3 per cent (FY 04).