Company Update : L&T Finance Ltd By Motilal Oswal Financial Services Ltd
Earnings in line; credit costs higher QoQ
Guides for normalization in the MFI business from early 2QFY26 onwards
* L&T Finance’s (LTF) 4QFY25 PAT grew 15% YoY to INR6.4b (in line). For FY25, PAT grew ~14% YoY to INR26.4b, while PPoP (in line) grew ~5% YoY to ~INR6.4b.
* Consol. credit costs stood at INR6.2b (in line), translating into annualized credit costs of ~2.55% (PQ: 2.5% and PY: 3.2%). The company utilized macroprudential provisions of INR3b in 4QFY25 and ~INR4b in FY25. Before the utilization of macro-prudential provisions, credit costs for the quarter stood at ~3.8% (PQ: 2.9%). The company now has unutilized macro provisions of ~INR5.75b. Write-offs stood at ~INR7.4b (PQ: ~INR5.9b).
* The Board declared a final dividend of INR2.75/share.
* Total loan book grew ~14% YoY and ~3% QoQ to ~INR978b. Wholesale loans continued to run down, declining ~43% YoY to ~INR26b (PQ: ~INR29b). Net SR declined to ~INR59b (from ~INR68b in FY24) on the back of monetization of assets, completion of projects and the subsequent sale of constructed units, and recovery measures through legal actions.
MFI loan book flat QoQ; business momentum in PL sustains
* Retail assets contributed ~97.4% to the loan mix. Retail loans grew ~19% YoY, led by healthy growth in HL, LAP, and Personal Loans. The company has resumed growth in its personal loans book, which grew ~11% QoQ. Rural Business Loans (MFI) were flat, while 2W declined ~3% QoQ.
* Total disbursements in 4QFY25 declined ~3% YoY to ~INR149b. Wholesale disbursements were nil during the quarter
Minor deterioration in asset quality; retail GS3 stands at ~2.9%
* Consol. GS3 rose ~6bp QoQ to ~3.3% and NS3 was stable QoQ at ~1%. PCR was broadly stable at ~71%.
* Retail GS3 rose ~5bp QoQ to 2.9%
Impact from Karnataka ordinance on MFI CE, but improvements visible
* MFI collection efficiency (0-90dpd) stood at ~97.6% in Mar’25 (vs 97.9% in Dec’24).
* Only ~8% (PQ: ~10.5%) of LTF customers have loans from four or more lenders (including LTF).
NIMs + Fees decline ~20bp QoQ; yields decline ~65bp QoQ
* Spreads (calc.) declined ~45bp QoQ to ~8.4%. Yields (calc.) declined ~65bp QoQ to ~15.6%, while CoF (calc.) declined ~15bp QoQ to 7.2%.
* Consol NIMs + Fees declined ~20bp QoQ to ~10.15%, driven by a decrease in MFI within the loan mix and a change in the product mix.
Valuation and view
* LTF’s quarterly earnings were in line with expectations. Disbursements and loan growth remained modest, reflecting the company’s strategic focus on calibrated risk-based expansion. Asset quality saw a slight deterioration, while NIMs continued to contract, primarily due to a reduced share of MFI in the loan portfolio.
* In the retail segment, Home Loans, LAP, PL, and SME continue to exhibit strong growth, with retail now contributing ~97% to the loan mix. Within MFI, Karnataka’s CE, which was impacted in Feb’25, showed signs of improvement in Mar/Apr’25. Management expects CE to normalize by early 2QFY26. We will review our estimates after the earnings call on 28th Apr’25
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