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Motilal Oswal Report
Stocks To Buy: We maintain our Buy with a target price of Rs 180 (1.5x Sep'26E price/book value).
L&T Finance Ltd. has moderated its MFI business growth and expects the industry to grow at 15%-20%. Importantly, this moderation has been done by choice (looking at the stress in the sector) rather than any duress in its own MFI book. It is expanding into Andhra Pradesh and Telangana, which it expects to be growth markets for its MFI business.
The company achieved highest-ever tractor disbursements in Oct'24. Management shared the rural cash-flows have been improving and multiple government schemes, which had been paused (prior to and during elections), have been resumed, bringing cash flows back in the hands of customers.
L&T Finance's strategic focus on digital innovation, prime customer acquisition, operational efficiencies, and risk-adjusted growth, will position it well to become a leading retail financial services player.
We expect L&T Finance's MFI business to fare better than most of its MFI peers in the current credit cycle. As investors gain more confidence in the company's ability to navigate the current MFI credit cycle with MFI credit costs at <4% in FY25, we believe that the stock will be ripe for a rerating and recoup the correction that was seen after its last earnings release.
The key risk is the MFI credit cycle continuing beyond FY25, resulting in high credit costs for far longer than currently envisaged.
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