LTF - L&T Finance Limited Share Price

Management highlighted a positive outlook for L&T Finance, projecting robust growth and profitability in FY27. The company aims for over 20% growth in assets under management (AUM) driven by strong consumer demand across urban finance, gold loans, and rural segments. The management expects to achieve a return on assets (RoA) of at least 2.8% by Q4 FY27, with credit costs trending lower to between 2% and 2.2%.

Key forward-looking points include:

1. Strategic Plan - Lakshya 2031:

   • Projected book growth at a CAGR of over 20%.
   • Target to reduce credit costs to 2% or lower.
   • Aim for a RoA between 3.0% and 3.2%, alongside a return on equity (RoE) of 16% to 18%.

2. Performance Metrics:

   • Anticipated NIMs+Fees in the stable range of 10% to 10.5%.
   • Continued investment in AI tools and technology to enhance efficiency and customer service.

3. Operational Updates:

   • Focus on opening 400+ gold loan branches and enhancing distribution for Two-Wheeler and Farm Equipment finance.
   • Implementation of the payments platform expected by Q2 FY27 to diversify revenue and enhance customer acquisition.

4. Risk Management:

   • Vigilance in monitoring for potential impacts from geopolitical tensions and economic changes, especially in SME and personal loan segments.

5. Credit and Collection Improvements:

   • Strong emphasis on the implementation of credit underwriting tools like Project Cyclops to optimize customer selection and reduce future credit costs.

In summary, management remains confident about maintaining growth momentum while navigating operational challenges effectively, with clear targets set for the coming fiscal year.

Major Questions and Answers from the Q&A Section of the Earnings Call:

1. Question: "Post the geopolitical tensions in West Asia, are there any areas of concern in your SME or personal loan portfolios?"

Answer: While the West Asia crisis poses risks, domestic consumers remain insulated from major energy shocks thus far. We don't see significant impacts on our portfolios, but we are cautious, particularly regarding fertilizer supply for the Kharif season. If the crisis persists, some downward pressures may emerge, especially on fertilizer availability affecting agricultural yields. We're focused on prime customers, who tend to be more resilient during economic fluctuations, and our AI tools let us monitor risks effectively.

2. Question: "Your guidance for over 20% AUM growth for FY27 is inclusive of geopolitical concerns, correct?"

Answer: Yes, our 20%+ growth guidance takes everything into account, including geopolitical uncertainties. However, unforeseen shocks might affect projections later in the year. As of now, we maintain our confidence in reaching this target despite potential challenges.

3. Question: "How do you expect AI advancements to affect your cost-to-income and cost-to-assets ratios in the near and long term?"

Answer: For the Lakshya 2031 plan, we forecast operating expenses to range between 3.75% to 4%, factoring in technology investments. In FY27, expenses will rise due to new branch setups but aim for a 2% credit cost by Q4FY27, supporting the planned RoA of 2.8% aiming by the following fiscal year.

4. Question: "Will your new provisions related to the ECL model impact your credit costs in FY27?"

Answer: While our ECL provisions are higher now, the impact on FY27 is mitigated as we anticipate improved portfolio quality. Our expectation is a downward trend in credit costs amid improving collection efficiencies and a focus on lower-risk segments, supporting our goal of reaching 2% credit costs by end of FY27.

5. Question: "What metrics do you target for personal loans and two-wheelers to reach sub-2% credit costs?"

Answer: We do not disclose specific business-wise credit cost estimates. Generally, two-wheeler credit costs are projected to be sub-2% based on our customer selection and performance metrics. For personal loans, industry loss rates hover between 2-3%, and we aim to position ourselves within this range, emphasizing a more prime customer focus.

These captured exchanges illustrate the company's confidence in managing risks while simultaneously leveraging technology and customer insights for future growth trajectories. If you have further queries or need additional analysis, feel free to ask!