- L&T Finance Ltd. is Macquarie's top NBFC pick with an outperform rating and Rs 400 target price
- Macquarie expects 22% AUM growth from FY26-29E, driven by a largely retailised loan book
- ROA is forecast to rise from 2.3% to 2.7% over three years due to lower credit costs and efficiency
L&T Finance Ltd. is Macquarie's top pick in the NBFC space as it has initiated coverage for the company with an 'outperform' rating while betting on revived growth, improving returns and a discounted valuation start.
Notably, the Macquarie's coverage has begun at Rs 400, one of the highest target prices for an NBFC on the D-Street and its estimates for fiscal 2027 and 2029 remain above consensus by 4-5%.
The brokerage noted that L&T Finance is not only a diversified retail lender, but it has fixed its legacy issues and now targets peer-like growth from a largely retailised book. For Macquarie, the lower stock valuation in comparison to peers, also remains attractive.
"The stock is attractive, trading at a 35-50% discount to larger peers despite comparable AUM and earnings growth expectations," the brokerage stated.
On the financial performance front, L&T Finance's headline spanning fiscal 2023 to 2926 assets under management growth of 15% masks the "deliberate demolition" of the wholesale book while the retail engine underneath compounded at 25%.
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"With retailisation largely complete at 98%, the drag is exhausted and reported growth converges to retail growth from FY27. We forecast a 22% AUM growth over FY26-29E, in line with larger peers," Macquarie underlined.
Additionally, the brokerage expects Return On Assets (ROA) to rise from 2.3% to 2.7% over the next three years, driven by lower credit costs as the NBFC leverages its proprietary Al underwriting, collection, and early-warning platforms, along with ARC book recoveries and efficiency gains.
"Given the MFI book's superior cross-cycle performance versus peers and the CEO's prior execution track record, we remain confident that L&T Finance can deliver a 28% EPS CAGR over FY26-29E," Macquarie underscored.
ALSO READ: L&T Finance Q1 Results: Profit Surges 29% To Record High On Solid Retail Book Growth
L&T Finance Q1 FY27
L&T Finance Ltd.'s net profit for the first quarter of fiscal 2027 jumped 28.7% to a fresh high on the back of a strong retail book growth, according to an exchange filing on Friday.
The company posted a consolidated bottom-line of Rs 902 crore, compared to Rs 701 crore in the year-ago period. Retail disbursements for the quarter under review grew 36% to Rs 23,852 Crore from Rs. 17,522 Crore in the corresponding quarter of the last fiscal.
Consolidated book registered a 27% rise to Rs 1,29,634 crore from Rs 1,02,314 crore. Total Income rose 23% to Rs 5,243 crore from Rs 4,260 crore year-on-year. Net Interest Income climbed 28.4% to Rs 2,924.8 crore. Return on Assets (RoA) improved to 2.48% in the first quarter of FY27, compared to 2.37% in the year-ago period.
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