'Buy' L&T Finance Maintains Motilal Oswal, Sees 23% Upside — Here's Why

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Motilal Oswal Report

L&T Finance Ltd. has invested in process automation and customer journeys. This, along with large partnerships with digital behemoths, should lead to stronger and more sustainable retail loan growth.

While there are industry-wide signs of stress in non-MFI retail segments like two-wheelers, tractors, and personal loan, we expect the stress to subside within the next few quarters. Stress in the microfinance sector is a near term headwind, which the company will navigate and come out stronger.

L&T Finance's relatively better navigation of the MFI crisis and diversification into non-leveraged MFI markets demonstrate its resilience and adaptability. Supported by digital partnerships with major players such as Amazon and PhonePe, L&T Finance is poised for a potential rerating and sustainable earnings growth once the near-term headwinds in the MFI business subside.

L&T Finance can deliver a PAT CAGR of ~22% over FY24-FY27E, which will result in a RoA/RoE of 2.7%/14.1% in FY27E. We reiterate our Buy rating on the stock with a target price of Rs 170 (based on 1.4x Sep’26 P/BV).

Key risks:

1. stress in microfinance lingering beyond the next two-three quarters,

2. asset quality deterioration in relatively vulnerable retail segments such as personal loan and two-wheelers, and

3. near-term compression in net interest margin and fee income.

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