Knowledge is loan power for L&T Infrastructure Finance

Taps L&T repository to identify solar as low-risk sector

L&T Infrastructure Finance Company, which leads the wholesale business of L&T Finance Holdings, has found itself in a sweet spot after its early bets on renewables coincided with the coming of age of solar power.

Today, as the sector grows from the present installed capacity of 3,500 mW to power up 20,000 mW in the next 12–18 months, L&T Infra Finance is busy utilising the deep knowledge base of Larsen & Toubro to position itself as a savvy partner of banks looking at the sector, its Chief Executive G Krishnamurthy said.

Infrastructure financing is going through a difficult period and has not seen fresh capital expenditure in the past 2–3 years due to problems in land purchase, resettlement, transport, and allocation of raw materials like coal.

These stresses have played a direct role in the rise of bank bad loans. L&T Infra Finance finds its competitive edge in identifying projects with fewer risks, and replacing short-term bank loans with longer-duration financing at attractive rates.

“It’s a win-win for everyone. Banks welcome it because they want to reduce their exposure to the infra sector. The borrower benefits because of better rates at a longer tenor,” Krishnamurthy said.

L&T Infra Finance’s business model is not about financing projects involving L&T. In fact, business coming to the company from L&T is in the low single digits.

“Actually we don’t even track it. We are a pure-play infrastructure financier, and we will finance whichever bankable project comes to us,” he said. But the company taps the L&T connection in a much smarter way. “L&T is aware of every project status in India as a contractor, or subcontractor, or in some other way. Therefore, we look up its knowledge base to assess the technical, engineering, and project fundamentals to locate projects with low risks,” Krishnamurthy said.

Started from Gujarat

It started financing solar projects in 2011-12. “That year, Gujarat awarded 950 mW of solar projects. We looked at one project and liked what we saw. We checked with L&T and found that solar sector risks are much less than others. Across India, solar radiation is fairly constant. Unlike a coal-thermal project, there is no raw material risk.

“Again, Gujarat discom had excellent credit rating. We actually funded about 155 mW of projects under the Gujarat scheme and we were extremely happy with the returns generated,” Krishnamurthy said.

This gave L&T Infra Finance the confidence to finance solar in much larger way. So much so that at one time it had 15 per cent market share in solar projects.

But as growth exploded, it decided that partnering with banks by sharing its knowhow is a better bet than underwriting big solar projects on its own. Today, it caps solar projects funded on its own at about Rs 1,000 crore.

L&T Infra Finance is structured under the wholesale business of L&T Finance Holdings, a listed company. L&T Fincorp and L&T IDF are the other wholesale components. Then comes retail led by L&T Finance and L&T Housing. The third element is investment management with average assets under management (AAUM) of  Rs 22,213 crore. In the just concluded quarter, L&T Finance Holdings reported a net profit of Rs 192 crore, up 15 per cent year-on-year.

As of June 30, 2015, its gross loan book was Rs 49,219 crore, of which wholesale accounted for Rs 23,352 crore. Retail  took the rest.

Apart from renewables like solar and wind power, roads are another focus area for L&T Infra Finance. These are the segments where the capex cycle will turn around earlier than others, Krishnamurthy predicts, looking at his crystal ball powered by L&T’s deep knowledge base. Perhaps it is time for banks to pay attention.