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Macro buffer utilization delivers stable Q1; hopes for a better H2

LTF reported a steady Q1FY26, with overall AUM crossing the Rs1trn mark and registering a 15% YoY (~13.8% excluding Gold Loans) growth, resulting from strong disbursements across the retail segment (including MFI and GL). Margins (NIM + fee) improved by ~7bps due to moderating CoFs. LTF has completed the integration of the acquired GL business and plans to expand branches to ~300 (from 135 now; including new geographies). Credit cost remained elevated in Q1 (Rs3bn of macro overly utilized in Q1) and the management expects MFI stress to peak in Q2FY26, with the growth momentum returning in H2. The focus on acquiring prime and near-prime customers, along with a broader rollout of Cyclops, is expected to help contain FY26 credit cost at 2.3–2.5%. Additionally, the mgmt plans to rebuild macro buffers using recoveries from the SR book, where several accounts are in advanced stages of resolution and proceeds are expected in FY27– 28. Incorporating the Q1 performance and the outlook for H2, we tweak our estimates, resulting in 30-50bps change in FY26-28E RoE and 3-5% change in FY26-28E EPS; we retain REDUCE with a revised Jun-26E TP of Rs190 (up 6% from Rs180), implying FY27E P/B of 1.6x.

RBI’s rate cut and easing MFI stress drove growth and margin improvement

LTF reported PAT of Rs7.01bn, marginally higher than our estimated Rs7.8bn, primarily on account of improved margins led by the RBI’s rate cut and easing stress in the MFI segment (utilized Rs3bn macro prudential buffer), resulting in improved income. Overall AUM registered 5%/15% QoQ/YoY growth, led by robust disbursements across products and integration of GL business. Credit cost remained elevated (calculated at 2.53%) in Q1FY26; the mgmt expects normalization in H2FY26 on Cyclops implementation and improving macros. Asset quality remained stable with GS3/NS3 at 3.31%/0.99%; the management has utilized Rs3bn of the macro prudential buffer in the MFI segment and has a balance of Rs2.25bn as provision buffer. RoA and RoE for the quarter improved marginally to 2.37% and 10.86%, respectively.

Expects H2 to show improvements across growth, credit costs, and margins

With MFI stress expected to peak in Q2 and normalize by Q3, and festive demand likely to be strong, the management reiterated its FY26 growth guidance of ~22–25%. Credit costs are expected to ease as benefits from Cyclops implementation start to materialize, increasing the share of prime customers with pressure from the MFI segment subsiding. However, the yield will also see some moderation, owing to the changing product mix and cyclops implementation, leading to better quality customer selection, with NIM + fee staying at ~10-10.5%. The mgmt also plans to create a macro buffer (not productspecific) from the recovery in SR book’s resolution (FY27-28). With these strategies and tech in place, execution remains the key to improved profitability. Overall, the mgmt sees exit quarter RoA in FY26 at ~2.5% and at ~2.8% in FY27.

Factoring in Q1 development; maintain REDUCE; raise TP by 6% to Rs190

To reflect the Q1 performance/developments in the MFI and Gold segments, we slightly increased our disbursement and AUM growth for FY26-28E, with a marginal improvement of ~3-10bps in margins; this resulted in a 3-5% increase in EPS over FY26-28E. We retain REDUCE with an increased Jun-26E TP to Rs190 (up by ~6%), implying FY27E P/B of 1.6x (as valuation is near fair zone after the recent outperformance of the shares and profitability is going to stay stable, with some uncertainty over the near term emerging from factors such as Bihar assembly elections and seasoning of the new unsecured loan book).

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