Supported by digital partnerships with major players such as Amazon and PhonePe, L&T Finance is poised for sustainable earnings growth once the near-term headwinds in the MFI business subside.
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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 is industry-wide stress in non-MFI retail segments like unsecured business loans and micro-laon against property, we expect the stress to subside within the next few quarters.
Going forward, we expect L&T Finance's growth in MFI loans to be more opportunistic in nature, given that it targets to bring down the MFI loans in the loan mix to 20-22% over the long term.
L&T Finance's relatively better navigation of the MFI credit cycle 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 sustainable earnings growth once the near-term headwinds in the MFI business subside.
L&T Finance can deliver a PAT CAGR of ~25% over FY25-FY27E, which will result in a RoA/RoE of 2.7%/14% in FY27E.
Reiterate our Buy rating on the stock with a target price of Rs 260 (based on 2x Mar'27 P/BV).
Key risks:
stress in microfinance lingering beyond the next three-four months,
asset quality deterioration in relatively vulnerable retail segments such as two-wheeler, unsecured business loans and micro-LAP and
any near-term pressure on NIM and fee income.
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