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LTF reported a strong quarter across parameters. It has scaled meaningfully as a retail franchise, with AUM reaching ~Rs1.2trn resulting from strong disbursements across segments, and record profitability while maintaining stable margins and improving asset quality. The management commentary points to sustained >20% growth, stable 10–10.5% NIM+fees, and a steady glide-down in credit costs toward ~2–2.2%. This should support a gradual improvement in return ratios to ~2.8% RoA in the near term and >3% over the medium term. The key driver for this is LTF’s tech-led underwriting and portfolio management stack (Cyclops, Nostradamus), which have helped reduce slippages and improve risk selection. Also, continued investments in distribution (especially gold loans and rural) should drive operating leverage over time. LTF also revealed its ‘Lakshya 2031’ roadmap, targeting 20% AUM CAGR, credit costs at or below 2%, and profitability metrics of 3–3.2% RoA and 16–18% RoE, with execution driven by AI-led underwriting, granular expansion, and product diversification. Factoring in recent performance and outlook, we adjust our estimates, resulting in a 1-2% increase in FY27-28E EPS. We maintain BUY and Mar-27E TP of Rs330, implying an FY28E P/B of 2.4x

A good quarter overall

LTF reported a good quarter across key parameters. PAT of Rs8.1bn was marginally above our estimate, mainly on account of lower credit cost. AUM growth remained strong, at 6.5%/24.5% QoQ/YoY, respectively, led by robust disbursements (~Rs241bn) across products. Reported margin (NIM) improved by ~20bps QoQ, led by improving yield and moderating CoFs. Opex-to-AUM was broadly stable, at 4.15%, while credit cost (reported) came in at 2.64%, declining ~20bps QoQ, mainly due to lower slippages and ECL refresh. Asset quality improved, with GS3/NS3 at ~2.9%/0.96% and healthy PCR of ~67%. RoA/RoE for Q4 came in at 2.4%/11.7%, respectively.

Retail scale and AI-led execution to power returns

The management indicated that the MFI business has stabilized, with collection efficiencies back to pre-crisis levels, supporting growth recovery. It expects >20% AUM growth, with NIM+fees stable at ~10–10.5%, driven by product mix and liability management. Credit cost is guided to decline to ~2–2.2% by Q4FY27, supported by Cyclops-led underwriting, portfolio seasoning, and a continued focus on prime customers. It expects to maintain a balanced mix of secured and unsecured loan book, with strong growth in urban segments (including gold loans), while ongoing investments in distribution and technology may keep costs elevated in the near term. However, improving credit costs and operating leverage are expected to drive RoA toward ~2.8% by FY27 exit, with further upside over the medium term.

We tweak our estimates; reiterate BUY

To reflect the Q4 performance and developments, we marginally adjust our estimates, resulting in FY27-28E EPS increasing by 1-2%. We reiterate BUY and Mar-27E TP of Rs330, implying FY28E P/B of 2.4x.

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