Company Update : L&T Finance by Motilal Oswal Financial Services Ltd
Earnings in line; credit costs (before utilization) down QoQ
NIMs + fees stable QoQ; healthy asset quality
* L&T Finance’s (LTF) 2QFY26 PAT grew 5% YoY to INR7.3b (in line). NII grew ~10% YoY to INR24b (in line). Opex rose ~12% YoY to ~INR10.7b (in line). Cost-income ratio declined ~40bp QoQ to ~39.5% (PQ: ~40%).
* PPoP grew ~3% YoY to ~INR16.8b (in line).
* Credit costs stood at INR6.4b (~9% lower than MOFSLe), translating into annualized credit costs of ~2.47% (PQ: 2.53% and PY: 2.85%). The company utilized macro prudential provisions of INR1.5b in 2QFY26 on account of residual forward flows. Before macro prudential provision utilization, credit costs for the quarter stood at ~3% (PQ: 3.4%). The company now has unutilized macro provisions of ~INR1.25b.
* Total loan book grew ~15% YoY and ~5% QoQ to ~INR1.07t. Wholesale loans were stable QoQ at ~INR25b.
Retail loans grow ~18% YoY; strong momentum in personal loans
* Retail assets contributed ~98% to the loan mix (PQ: ~98%). Retail loans grew ~18% YoY, led by healthy growth in 2W, SME, LAP and Personal Loans. Personal loans witnessed robust growth of ~16% QoQ and 52% YoY. Rural Business Loans (MFI) grew ~3% QoQ, while 2W grew ~6% QoQ.
* Total disbursements in 2QFY26 rose ~25% YoY to ~INR189b. Wholesale disbursements were only ~INR130m during the quarter
Asset quality broadly stable; retail GS3 stands at ~2.9%
* Consol. GS3 was stable QoQ at ~3.3%; NS3 was also stable QoQ at ~1%. PCR declined ~50bp QoQ to ~70.3%.
* Retail GS3 was broadly stable QoQ at 2.9%.
MFI collection efficiency shows minor improvement during the quarter
* MFI collection efficiency (0-90dpd) stood at ~98.2% in Sep’25 (vs 97.8% in Jun’25). Collection efficiency in Karnataka stood at 99.05% in Aug’25 and 99.18% in Sep’25 (compared to ~98.5% in Jun’25).
* Only ~3.6% (PQ: ~5.2%) of LTFH customers have loans from our or more lenders (including LTFH).
NIMs + fees stable QoQ; CoB (reported) declined ~35bp QoQ
* Spreads (calc.) remained stable QoQ at ~8.6%. Yields (calc.) declined ~20bp QoQ to ~15.4%, while CoF (calc.) declined ~20bp QoQ to 6.8%.
* Reported NIMs rose ~20bp QoQ to 8.4%. However, consol. NIMs+fees were stable QoQ at ~10.2%, driven by lower fee income.
* Consol. RoA/RoE in 2QFY26 stood at ~2.4%/11.3%
Other updates
* Project Cyclops has been successfully implemented across 2W, farm equipment and SME business. Further, the implementation in personal loans will be completed by 3QFY26.
* Nostradamus is live in Beta mode, with MVP (minimum viable product) for 2W finance going live in Aug’25. The full implementation of Nostradamus is expected by Dec’25 for all lines of business.
* By end-FY26, the company plans to add 200+ new branches, taking its gold distribution strength to ~330 gold loan branches.
Valuation and view
* LTF’s 2QFY26 earnings were in line with the expectations, with healthy disbursement volumes driving ~18% retail loan growth. Asset quality remained largely stable, resulting in sequentially lower credit costs (before macro provision utilization). The company also benefited from lower borrowing costs, aided by policy rate cuts, which contributed to a modest expansion in NIM.
* In the retail segment, personal loans, LAP, SME, and 2W exhibited healthy loan growth, with retail now contributing ~98% to the loan mix. We will review our estimates and TP after the earnings call on 16th Oct’25.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
.jpg)
