Company Update : L&T Finance by Motilal Oswal Financial Services Ltd
Earnings in line; credit costs decline sequentially
Reported NIMs + Fees rose ~7bp QoQ; asset quality remained broadly stable
* L&T Finance’s (LTF) 1QFY26 PAT grew 2% YoY to INR7b (in line). NII grew ~8% YoY to INR22.8b (~5% beat). Opex grew ~9% YoY to ~INR10.5b (~6% higher than MOFSLe). Cost-income ratio declined to ~40% (PQ: ~41.3%).
* PPoP grew ~7% YoY to ~INR15.8b (in line).
* Credit costs stood at INR6.3b (in line), translating into annualized credit costs of ~2.23% (PQ: 2.55% and PY: 2.37%). The company utilized macro prudential provisions of INR3b in 1QFY26 toward rural business finance (MFI). Before macro prudential provision utilization, credit costs for the quarter stood at ~3.43% (PQ: 3.8%). LTF now has unutilized macro provisions of ~INR2.75b.
* Total loan book grew ~15% YoY and ~5% QoQ to ~INR1.02t. Wholesale loans continued to run down, declining ~42% YoY to ~INR25b (PQ: ~INR26b).
Retail loans grow ~18% YoY; momentum in personal loans sustains
* Retail assets contributed ~98% to the loan mix (PQ: ~97%). Retail loans grew ~18% YoY, led by healthy growth in Tractors, HL, LAP, and Personal Loans. The company has resumed the expansion of its personal loans book, which grew ~8% QoQ. Rural business loans (MFI) grew ~1% QoQ, while 2W was flat QoQ.
* Total disbursements in 1QFY26 rose ~18% YoY to ~INR175b. Wholesale disbursements were nil 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 ~30bp QoQ to ~70.8%.
* 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 ~97.8% in Jun’25 (vs 97.6% in Mar’25).
* Only ~5.2% (PQ: ~8.2%) of LTFH customers have loans from 4 or more lenders (including LTFH).
NIMs + Fees rise ~7bp QoQ; CoB (calc.) declines ~15bp QoQ
* Spreads (calc.) rose ~25bp QoQ to ~8.6%. Yields (calc.) rose ~10bp QoQ to ~15.7%, while CoF (calc.) declined ~15bp QoQ to 7%.
* Reported NIMs rose ~10bp QoQ to 8.25%. However, Consol NIMs+Fees rose ~7bp QoQ to ~10.22%, driven by lower fee income and a decline in MFI in the loan mix.
Valuation and view
* LTF’s 1QFY26 earnings were in line with expectations. Disbursements and loan growth remained modest, reflecting the company’s strategic focus on calibrated risk-based expansion. Notably, asset quality remained largely stable despite 1QFY26 being a seasonally weak quarter, which is a key positive. Additionally, the company benefited from a decline in borrowing costs, driven by policy rate cuts, which supported a modest expansion in NIMs.
* In the retail segment, Home Loans, LAP, PL, and Tractors 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 21st Jul’25.
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