IGI Logo

L&T Finance (LTF) reported a steady quarter, with PAT beat of +4% on our estimates increasing (+2% YoY, +10% QoQ), leading to RoA of 2.37% (+15bps QoQ). Credit costs, improved sequentially to 2.2% (-28bps QoQ) and the company utilized further INR 3bn macro-prudential provisions (vs INR 4bn used up in FY25 out of total INR 9.75bn) taking its outstanding overlay of INR 2.75bn. Adjusting for this utilized overlay, credit costs would have been 3.4% vs 3.8% in Q4). Though credit costs were anticipated to be elevated in H1FY26, we believe that the outcome during the quarter was favorable with GS3/NS3 holding up at 3.3%/1% (both +2bps QoQ). Margins (reported) improved +9bps QoQ led by -16bps QoQ decline in CoFs and -8bps QoQ decline in yields. NIM+Fees stood strong at 10.22% (+7bps QoQ) vs management guidance of 10-10.5%. Gross loans grew (+5% QoQ, 15% YoY) led by strong disbursements of INR 175bn (+17% YoY/QoQ). The growth largely came in from its LAP (+10% QoQ) and personal loans (+8% QoQ) portfolio while LTF also acquired gold loan business of Paul Merchants Finance which led to INR 13.6bn gold loan book during the quarter. We will revise our estimates post the call which is scheduled on 21st Jul’25 (Monday) at 11.00am. We have a BUY rating on the stock with a target price of INR 230 (valuing company at 1.9x FY27E BVPS)

* Growth pick up led by gold book acquisition: Disbursements growth during the quarter was strong at (+17% YoY/QoQ both) majorly led by pick up in LAP (+35% QoQ), farm equipment (+25% QoQ), 2W (+15% QoQ), rural business loan (+10% QoQ) and HL (+13% QoQ) segments. On the other hand, the company acquired Paul Merchants Finance’s gold loans business which led to incremental disbursements of INR 15.3bn. As a result, overall growth came in strong at +5% QoQ, +15% YoY. Within the retail book, growth was driven by LAP (+10% QoQ), Personal loans (+8% QoQ), SME finance (+7% QoQ) and home loans (+5% QoQ). In addition, it acquired gold loans book of INR 1.3bn from Paul Merchants Finance. Wholesale book contracted -3% QoQ leading to total retail composition of 98% of total book.

* Margin improves sequentially: LTF reported largely line operating performance led by modest NII growth of +2% YoY, +6% QoQ as reported margins improved +9bps QoQ led by -16bps QoQ decline in CoFs and -8bps decline in yields. NIM+Fees stood strong at 10.22% (+7bps QoQ) vs management guidance of 10-10.5%. Opex grew +9% YoY, +4% QoQ leading to PPoP growth of +4% YoY, +6% QoQ -2% JMFe. Lower than expected credit costs of 2.2% (vs 2.5% QoQ) led to a PAT beat of +4% on our estimates. The lower credit costs was on the result of utilization of macro prudential provisions of INR 3bn adjusting for which credit costs was 3.4% vs 3.8% QoQ.

* Steady asset quality: GS3/NS3 was largely steady at 3.31%/0.99% (+2bps QoQ both), with PCR at 71%. Retail GS3 was up +3bps QoQ at 2.93% on which the company maintains PCR of 72.3% (72.8% QoQ). Due to macro utilization during the quarter, the ECL cover on its retail stage 2 declined sharply from 42% in Q4FY25 to 29.1% during the quarter also leading to total provision cover to decline to 3.4% from 3.7% QoQ. The LTF+3 or more lenders now comprises 5.2% of total book (vs 8.2% in Q4FY25).

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361