LTF - L&T Finance Limited Share Price

Management Outlook:
L&T Finance remains cautiously optimistic despite macroeconomic challenges, expecting rural recovery to continue and urban demand to improve with moderating inflation. Anticipated fiscal/monetary support in upcoming budgets and policy announcements is seen as a catalyst for growth. Key priorities include sustaining retail loan growth (23% YoY in Q3), achieving 2.8"“3.0% consolidated RoA by 2026, and leveraging technology to enhance underwriting and portfolio management.

Major Highlights:

1. Business Performance:

   • Retail disbursements reached Rs.15,210 Cr (up 5% YoY), with a retail book of Rs.92,224 Cr (23% YoY growth).
   • Consolidated RoA at 2.27% (down 26 bps YoY) due to NIM compression and elevated credit costs.

2. Asset Quality & Provisions:

   • GS3 at 3.23% and NS3 at 0.97%, within Lakshya 2026 thresholds.
   • Utilized Rs.100 Cr of macro provisions in Q3; plans to use Rs.300"“350 Cr in Q4 for RGL/MFI stress.

3. Strategic Initiatives:

   • Project Cyclops: Expanded to 100% of Two-Wheeler dealerships and Farm Equipment Finance, reducing Net NPA by 120 bps in TW loans.
   • Digital Partnerships: Collaborations with Amazon Pay and PhonePe to enhance digital lending.
   • New Products: Micro LAP (Rs.300 Cr book), Warehouse Receipt Finance (Rs.350 Cr disbursements YTD), and SME Supply Chain Finance launched.

4. Sectoral Adjustments:

   • Shifted focus to prime customers (75% of incremental TW disbursements in Jan 2025).
   • Calibrated RBF disbursements (-16% YoY) to prioritize portfolio quality.

5. MFI Challenges:

   • Collection efficiency stabilized at ~99% in Dec 2024/Jan 2025.
   • Expect MFIN 2.0 guardrails (effective April 2025) to improve sector discipline.

6. Forward Guidance:

   • Targeting consolidated RoA of 2.8"“3.0% through better credit calibration, fee income growth (e.g., insurance), and cost optimization.
   • Growth in secured products (HL/LAP, SME) and prime segments (Personal Loans up 94% YoY) to offset MFI moderation.

Key Risks: Macroeconomic volatility, inflationary pressures, and delayed rural/urban demand recovery. Execution of tech initiatives (e.g., Project Nostradamus) and regulatory changes (MFIN norms) remain critical watchpoints.

Question 1:
"Regarding the ARC sale-related notes to accounts, wherein we have mentioned about Rs.250 Cr of provision reversed to P&L. But when I see the credit cost ex of the overlay, it doesn't seem that we have taken that benefit. Is it reserved for the SRs (security receipts)?"
Answer:
The Rs.250 Cr provision reversal was adjusted against security receipts (SRs) created from the ARC sale. Ind AS accounting mandates that gains from asset transfers to ARCs are reinvested as SRs, with no immediate P&L impact. The reversal was offset by equivalent provisions for SRs, resulting in a net carrying value of Rs.440 Cr for SRs as of December 31, 2024.

Question 2:
"Given the shift toward prime customers in Two-Wheeler and Tractor financing, are current provisions reflecting improved underwriting, or will credit costs decline further in non-MFI segments?"
Answer:
Benefits of prime-focused underwriting (e.g., Project Cyclops) will take 2"“3 quarters to reflect in credit costs as legacy portfolios phase out. Leading indicators (e.g., lower bounce rates) show early improvement. Two-wheeler prime disbursements rose to 75%+ in Jan 2025, with a 120bps reduction in net non-starters.

Question 3:
"NIMs + Fees guidance is 10"“11%, but growth in lower-yield segments (e.g., LAP/home loans) may pressure margins. How will this trade-off be managed?"
Answer:
Margins will balance fee expansion (e.g., insurance penetration, digital partnerships) and calibrated growth in higher-yield products (personal loans, Micro LAP). Fee income initiatives include lifecycle insurance sales and tech-driven efficiency. Margin compression from prime shifts will be offset by lower opex/credit costs over time, retaining focus on 2.8"“3% RoA.

Question 4:
"Why is Two-Wheeler book flat despite Rs.2,414 Cr disbursements? Are write-offs elevated?"
Answer:
Flat book growth reflects reduced trade advances (Rs.350 Cr decline) and portfolio seasoning, not elevated write-offs. Credit costs are stabilizing, with prime focus (49% of book) and Cyclops adoption improving bounce rates. Two-wheeler delinquencies peaked in Q2 and are trending downward.

Question 5:
"With MFIN 2.0 guardrails effective April 2025, will MFI credit costs peak in Q4FY25 or spill into FY26?"
Answer:
Credit costs are expected to peak in Q4FY25 due to lagged delinquency recognition. Collection efficiency improved in Dec 2024/Jan 2025, and macro provisions (Rs.300"“350 Cr planned for Q4) will cushion impacts. MFIN 2.0's leverage caps may temporarily slow growth but favor lenders with low-leverage books like LTF.

Question 6:
"What drives the structural outlook for microfinance growth and yields post-current stress?"
Answer:
Post-MFIN 2.0, MFI growth will normalize to 15"“20% annually vs. past hypergrowth. Yields will stabilize at 16"“23% (vs. 24% earlier), tiered by borrower risk. LTF's exclusive customer base (>50% "Pragati" non-leveraged clients) and RCU checks position it to outperform amid industry recalibration.

Question 7:
"How will Project Cyclops impact Personal Loan/SME underwriting, and why scale before full implementation?"
Answer:
Cyclops's AI-driven underwriting targets consistent PD (probability of default) thresholds, enhancing risk calibration. Personal Loans (17% yield, Rs.2.5L avg. ticket) focus on prime salaried customers (40bps net non-starters), allowing safe scaling. Cyclops will further tighten SME/PL underwriting but offers lower alpha than in NTC (new-to-credit) segments.

Question 8:
"When will NIMs + Fees stabilize, and operating leverage materialize?"
Answer:
NIM pressure (mix shift to prime/secure loans) may persist for 2"“3 quarters, offset by opex efficiencies (e.g., collections digitization) and lower credit costs. Operating leverage will improve as Cyclops-driven underwriting and macro recovery reduce delinquency workloads, with benefits visible by H2FY26.