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LTF reported a strong start to FY27, with AUM reaching Rs1.3trn (+27% yoy), led by robust disbursements across product segments. Asset quality remains strong, with credit costs seeing a ~10bps sequential decline, driven by improved collections and AI-led initiatives like Cyclops and Nostradamus. The management remains confident of driving >20% AUM growth, maintaining NIM+fees at 10–10.5%, and progressively lowering credit costs to ~2–2.2% by FY27 exit. This should support a gradual improvement in RoA to ~2.8% in the near term and >3% over the medium term. While monitoring macro developments like US-Iran geopolitical tensions and monsoon concerns, LTF informed that its on-ground checks indicate that ~70% of the country is receiving normal rainfall, with acceptable reservoir levels. Further, continued strong growth in Gold Loans, Micro LAP, and Personal Loans is expected to support growth and margins, while CoF is anticipated to remain at 7.35–7.4%. Factoring in the recent performance and outlook, we adjust our estimates, resulting in a 1–4% increase in FY27–29E EPS. We maintain BUY and raise Jun27E TP by ~6% to Rs370 (from Rs350), implying an FY28E PBV of 2.7x.

Strong performance across parameters

LTF reported a strong quarter across key parameters. PAT of Rs9.2bn, came in above our and street estimates, mainly due to lower opex and credit costs. AUM growth remained robust, at 6.5%/27% qoq/yoy, respectively, led by healthy retail disbursements (~Rs239bn) across products. Reported margin (NIM+Fees) was stable at 10.47%, while the management indicated that NIM compression was mainly due to higher liquidity and a marginal increase in CoF. Opex-to-AUM improved slightly to 4.03%, while credit cost came in at 2.54%, declining by ~10bps qoq, mainly due to strengthened collections and AI-led tech deployment. Asset quality improved steadily, with GS3/NS3 at 2.86%/0.90% and healthy PCR of 69%. RoA/RoE for 1Q came in at 2.48%/12.71%, respectively.

Expect growth momentum to continue

LTF indicated its ground-level monitoring of the monsoon indicates acceptable reservoir levels and resilient rural demand, while it remains a bit cautious in select segments of MSME due to the ongoing US-Iran conflict. It remains confident of delivering on its Lakshya 2031 targets, while it expects credit costs to decline to ~2–2.2% by 4QFY27, supported by Cyclops-led underwriting and a continued focus on prime customers. With regard to fee income (insurance cross-sell), LTF expects the regulator and companies to arrive at a mutual solution, and it is diversifying the source. It expects strong growth in urban segments, including gold loans (adding ~500 more branches in FY27) and personal loans, with further momentum anticipated from upcoming festive demand. While ongoing investments in distribution and AI technology may keep near-term costs elevated, improving credit costs and operating leverage should drive RoA to ~2.8% by FY27 exit.

We tweak our estimates; reiterate BUY

To reflect the 1Q performance and developments, we marginally adjust our estimates, resulting in FY27-29E EPS increasing by 1-4%. We reiterate BUY and raise Jun-27E TP by ~6% to Rs370, implying FY28E PBV of 2.7x

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