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LTFH reported impressive performance in Q1FY25, with overall AUM growing ~13%/4% YoY/QoQ to Rs887bn (95% retail AUM) and overall RoAAUM at ~2.7% (expanding by 55bps YoY), driven largely by increased retailization. With its focus on credit underwriting and collections, the company saw broadly stable asset quality and collection efficiencies across business segments; it sees no challenges to its Rural Finance business. Company continues to sharpen focus on its 5-pillar strategy and expects continued growth on its clearly-laid path, with expansion into new geographies and deeper penetration in existing locations. Asset quality should remain stable, led by strong collection efficiency and prudent underwriting, supported by increasing share of prime and nearprime customers in the urban finance segment. To reflect Q1 developments, we marginally adjust our FY25-26E upwards, leading to minor earnings uptick. We keep Jun-25E TP of Rs210/sh (FY26E P/B of 1.8x), and reiterate ADD on LTF.

Profitable growth momentum continues

LTF reported a good quarter with PAT at Rs6.8bn, beating our estimate by 4%. Beat was mainly due to lower-than-estimated opex registering a sequential decline of 1.5%, whereas Opex-to-AUM declined sequentially by ~25bps (4.45% vs 4.69%). Overall margins were intact with NIMs improving by 15bps, whereas NIMs+Fees were impacted due to lower quarterly fees income. Overall asset quality remains stable with no surprise in credit cost. Continuing on its target to deliver 2.8-3% ROA, LTF reported consolidated ROAAUM of 2.68% in Q1FY25, resulting in annualized ROE of 11.58% (Exhibits 1&4).

‘Lakshya’ led journey to continue; no signs of worry in Rural Finance

Management highlighted that Q1FY25 has been one of its best-ever Q1 ever and expects the growth trajectory to continue throughout FY25, supported by anticipation of good monsoons and increasing reach through partnership/geographic expansion. Regarding weakness in rural demand, Management expects it to recover on the back of good monsoons and enhanced financial support; it sees no stress in terms of asset quality driven by prudent underwriting and customer selection based on consumer leverage and group indebtness. LTF emphasized that their 5-pillar strategy remains central, aiming to build a top-class, digitally-enabled, customer-focused retail finance business. Margins should remain stable as Company continues to focus on prime and near-prime customers in its urban finance segment, which come at a lower cost. The combined operating and credit cost is projected to stay ~7% as investments in technology and capability building are likely to continue over the next 3-4 quarters, and the share of prime and near-prime customers increase. Company is also committed to investing in promotion and branding. Regarding its wholesale book (SR), Management expects it to be liquidated over the next 10-14 quarters, with net gain anticipated by the end of the process.

Minor revision to our estimates; reiterate ADD with TP of Rs210/share

Following impressive and broadly in-line Q1FY25 results, we marginally tweak our Opex estimate downwards by ~0-1.3% over FY25-27E, resulting in PAT improvement of 1-3% in the same period. As LTF continues to deliver through its established retail business, and drag from the wholesale book diminishes, we expect it to deliver consol. ROA of ~3%/16% ROE by FY27E. We reiterate ADD on the stock, with Jun-25E TP of Rs210/sh, implying FY26E P/B of 1.8x. (Exhibit 2&3)

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