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LTFH reported consolidated profit of INR5.3bn (+6% QoQ) in line with our estimate. NII at INR16.4bn (+15% YoY) and PPOP at INR11.9bn (+3% YoY) were both 3% above our estimates. Credit costs (annualized) remained largely stable at 2.4% of total AUM (+5bps QoQ). While overall loan assets declined (-11% YoY, -2.9% QoQ) led by run-down in wholesale book (-65% YoY, -28% QoQ), retail book recorded healthy growth at +34% YoY, +5% QoQ (mgmt. guidance for retail book growth at 25-30% CAGR). Retail assets now form ~82% of total loans. Mgmt. reiterated its focus on scaling up the retail portfolio to ~90% of the overall lending book by FY26 led by continued traction in its identified segments of consumer loans (+98% YoY), rural micro/group loans (+37% YoY) and home loans (+35% YoY). Reported NIMs improved +43 bps QoQ at 8.1% as yields moved up +54bps QoQ at 14.7%. Asset quality outcome was also favourable with 70bps QoQ decline in GS3 led by 80bps QoQ improvement in wholesale GS3 and 20bps QoQ improvement in retail GS3. Mgmt. believes focus on analytics, cross sell to existing customer base and continued investments in its tech prowess should aid LTFH in delivering its targeted RoA of 2.8-3% on an overall level (with GS3<3%, NS3<1%). In our view, the scale up of LTFH’s retail portfolio is encouraging while reinforcement of new leadership would further aid in medium-term RoAs of 2.1%/2.3% by FY24E/FY25E. We maintain BUY with a revised TP of INR 145 (1.3x FY25e P/BV).

* Retail loans scaling up at a brisk pace: While overall loan assets declined (-11% YoY, - 2.9% QoQ) led by decline in wholesale assets (-65% YoY, -28% QoQ), retail loans growth was healthy at (+34% YoY, +5% QoQ). Retail book presently stands at ~82% of the loan book as against 54% in 1QFY23. The growth in retail was was led by SME Finance (+29% QoQ), consumer loans (+98% YoY, 10% QoQ), rural micro/group loans (+37% YoY, 6% QoQ) and home loans (+35% YoY, 6% QoQ) whereas exposure to wholesale business was brought down (65% YoY, -28% QoQ). LTFH revised its plans to increase its retail share to ~90% of total loans by FY26 from 80% previously which it achieved during current year. It maintains a guidance of 25-30% CAGR growth in retail loans going forward. We have built a total AUM growth of 20% CAGR by FY23-25E.

* Margins inch up on the back of higher yields: Reported NIMs improved +43 bps QoQ at 8.1% on the back of increase in yields by +54bps QoQ at 14.7%. CoFs moved up +6bps QoQ at 7.8%. Reported NIMs+Fees for retail book stood at 11.7% (+17bps QoQ) and 9.6% on consolidated basis. Mgmt expects NIMs+Fees to sustain at 11.5% levels going forward. We believe this would drive NIMs further upward with continued retailization

* Healthy improvement asset quality; large on-book provisions offer cushion: LTFH’s GS3 assets stood at 4.04% (down 70bps QoQ) primarily led by sequential decline of 80bps in wholesale GS3 at 7.58% and 20bps decline in retail GS3 at 3.21%. The provision cover on the same stands healthy at 71%. Credit costs (annualized) remained largely stable (+5bps QoQ) at 2.4% of total AUM. We have built in an average credit cost of ~2% over FY24-25E. Retail book asset quality will be a monitorable given the strong growth underway and will be a critical driver for achieving the 2026 goals laid out by the mgmt. while there is only one large NPA account of Rs 15bn in wholesale GS3 out of which INR 5bn was sold to ARC.

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