L&T Finance shares rose more than 2% on Monday even after Morgan Stanley retained its "Underweight" rating and a target price of Rs 185, saying the non-banking finance company's valuation already reflects more optimism than its business outlook supports.
The brokerage said L&T Finance's June-quarter FY27 earnings were marginally ahead of its estimates, but added that the stock price already factors in stronger future improvement while overlooking key risks to growth and profitability.
L&T Finance shares rose as much as 2.16% to an intraday high of Rs 328.65 on the BSE. At around 9:25 a.m., the stock traded 2.12% higher at Rs 328.05. The BSE Sensex was down 0.79% at 76,953.95.
Morgan Stanley Sees Valuation Risks Despite Earnings Beat
Morgan Stanley said profit after tax was 3% above its estimate, reflecting continued execution by the company.
However, the brokerage said the current valuation prices in more improvement than it considers justified. It also said other companies in the sector offer more attractive valuations.
The brokerage flagged risks to loan growth because of L&T Finance's exposure to the microfinance, tractor and two-wheeler financing segments, which could face pressure from an El Nino-led slowdown.
Morgan Stanley also said there is limited scope for further expansion in net interest margin as the share of the higher-yielding microfinance portfolio declines. It added that any regulatory changes to insurance commissions could affect the company's fee income.
L&T Finance Reports Record Quarterly Profit
L&T Finance reported its highest-ever quarterly consolidated profit for the first quarter of FY27, with profit after tax rising 29% year on year to Rs 902 crore.
Its consolidated loan book increased 27% to Rs 1.29 lakh crore, while the retail loan book grew 28% to Rs 1.28 lakh crore, exceeding the company's long-term growth target.
Retail disbursements rose 36% from a year earlier to Rs 23,852 crore. Personal loan disbursements more than doubled, two-wheeler finance grew 41%, and the gold loan book increased 182% year on year.
Asset quality also improved. Gross Stage 3 assets fell to 2.86% from 3.31% a year earlier, while Net Stage 3 assets improved to 0.90%. Credit cost declined to 2.54%, down 89 basis points from a year ago and 10 basis points from the previous quarter.
The company said it accelerated technology deployment as part of its strategy to become an AI-native lender. It also reported a 25-basis-point improvement in net interest margin plus fees to 10.47%, while return on assets increased to 2.48%.
Commenting on the quarterly performance, Sudipta Roy, managing director and chief executive officer of L&T Finance, said, "Q1FY27 was another quarter where we remained focused on disciplined execution amidst an evolving macroeconomic environment marked by geopolitical uncertainties, inflationary pressures and elevated borrowing costs. Despite these external factors, our diversified retail franchise continued to demonstrate resilience, delivering strong business momentum and healthy book growth in line with the goals of our Lakshya 31 strategic plan."
Roy added, "Our consistent investments in technology, analytics and AI continue to be a key differentiator, both in terms of customer experience as well as credit outcomes."
ALSO READ: L&T Finance Q1 Results: Profit Surges 29% To Record High On Solid Retail Book Growth
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