On Thursday, IL&FS group and SuperTech thus pulled down L&T Finance Holdings stock by 7.6 %. The company reported the strong September quarter Q2 numbers after market hours a day earlier.

For Q2, LTFH clocked 24% year on year growth in its loan book to Rs 912 billion and net profit surged to 66% to Rs. 5.6 billion. However, it’s Rs. 18 billion exposure to special purpose vehicles of IL&FS Transportation Networks and Rs 8 billion to Super Tech was more disappointing for investors. The concern is not without a reason. With these loans accounting for about 3% of total advances, it will impact LTFH in case of a default.

According to the Managing Director and CEO of LTFH, Dinanath Dubhashi said that” Cash flows from projects of SPVs of ITNL  sufficient to take care of debt repayments. We have full control of the escrow account, debt services and other reserves. There is also the fallback to the government guarantees and termination payments for the entire outstanding. Thus we are confident of the entire recovery.

However, the management does not see any default. LTFH has made Rs. 2 billion extra provision for any unexpected event. LTFH has also maintained a liquidity cushion of Rs 103 billion and has Rs 20 billion back up from parent L&T. Therefore, any liquidity issue is unlikely to hinder its targeted loan book growth of 20-22%.

The shares grew to 24% in Q2, from 17% last fiscal year. Analysts believe that negatives have been priced in. However, given the weak sentiment towards NBFCs, waiting for all clearance could be a better option.

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