Buy L&T Finance Ltd for the Target Rs 380 by Motilal Oswal Financial Services Ltd
Strong quarter backed by disciplined execution Earnings in line; NIM + fees stable QoQ despite some pressure on core NIM
* L&T Finance’s (LTF) 1QFY27 PAT grew 29% YoY to INR9b (in line) and NII grew ~28% YoY to INR29.2b (in line).
* Opex grew ~21% YoY to ~INR12.7b (in line). The cost-income ratio declined 100bp QoQ to 38.7% (PQ: 39.7%). PPoP (5% beat) grew 27% YoY to INR20.1b. Credit costs stood at INR7.7b (in line). Reported credit costs declined ~10bp QoQ to 2.54% (PQ: 2.64%).
* LTF outlined three key strategic priorities for FY27:
(i) accelerating crossselling and up-selling
(ii) improving productivity
(iii) embedding a technology-first, AI-led culture across the organization.
* Management shared that the company had consciously forgone incremental disbursements of ~INR10b-12b during the quarter to calibrate asset quality amid a volatile operating environment and to prioritize sustainable long-term profitability over near-term growth. LTF shared that rural business finance, gold loans and personal loans will remain the key growth engines over the medium term. It plans to open 500 new gold loan branches in FY27.
* We remain constructive on LTF, as the company continues to execute well on its Lakshya 2031 strategy while differentiating itself through a technology and AI-led lending platform. With multiple growth levers, improving franchise quality and a roadmap toward higher profitability, it remains well positioned for a further re-rating in valuation multiples.
* We estimate a CAGR of ~25% in the loan book and ~30% in PAT over FY26- FY28E, with consolidated RoA/RoE of 2.6%/~15% in FY28E. We expect LTF to deliver a structural improvement in profitability and RoA going forward. Reiterate BUY with a TP of INR380 (based on 2.7x Mar’28E BVPS).
Retail loans grow 28% YoY; strong momentum all across
* Disbursements grew 36% YoY to INR238b. Secured disbursements grew ~40% YoY to INR30b, led by 2W finance. Gold finance disbursements stood at INR19.3b. Personal loan disbursements stood at INR43.8b with an increased focus on Big Tech partnerships. Rural business finance disbursements increased 24% YoY to INR69.6b.
* Total loan book grew ~27% YoY and ~6.5% QoQ to ~INR1.3t. Wholesale loans declined to ~INR21b. Retail assets contributed ~98% to the loan mix. Retail loans grew ~28% YoY, led by healthy growth in MFI, 2W, LAP and personal loans. Personal loans saw robust growth of 15% QoQ and 80% YoY. Rural business loans (MFI) grew 5% QoQ, Gold loans grew 35% QoQ and SME rose 4% QoQ
Valuation and view
* LTF's 1QFY27 earnings were broadly in line, supported by strong disbursements, leading to healthy retail loan growth. Asset quality remained broadly stable, leading to a sequential moderation in credit costs. Despite an uncertain geopolitical environment and elevated bond yields during the quarter, CoF and NIMs + fees remained largely stable.
* LTF currently trades at 2.6x FY27E P/B. We estimate a CAGR of ~25% in the loan book and ~30% in PAT over FY26-28E, with consolidated RoA/RoE of 2.6%/15% in FY28E. We expect LTF to deliver a structural improvement in profitability and RoA going forward. Reiterate BUY with a TP of INR380 (based on 2.7x Mar’28E BVPS).
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