Buy Larsen and Toubro Finance; target of Rs 190: Emkay Global Financial

Emkay Global Financial' research report on Larsen and Toubro Finance

LTF reported a steady Q1FY26, with overall AUM crossing the Rs1trn mark and registering a 15% YoY (~13.8% excluding Gold Loans) growth, resulting from strong disbursements across the retail segment (including MFI and GL). Margins (NIM + fee) improved by ~7bps due to moderating CoFs. LTF has completed the integration of the acquired GL business and plans to expand branches to ~300 (from 135 now; including new geographies). Credit cost remained elevated in Q1 (Rs3bn of macro overly utilized in Q1) and the management expects MFI stress to peak in Q2FY26, with the growth momentum returning in H2. The focus on acquiring prime and near-prime customers, along with a broader rollout of Cyclops, is expected to help contain FY26 credit cost at 2.3–2.5%. Additionally, the mgmt plans to rebuild macro buffers using recoveries from the SR book, where several accounts are in advanced stages of resolution and proceeds are expected in FY27– 28.

Outlook

Incorporating the Q1 performance and the outlook for H2, we tweak our estimates, resulting in 30-50bps change in FY26-28E RoE and 3-5% change in FY26-28E EPS; we retain REDUCE with a revised Jun-26E TP of Rs190 (up 6% from Rs180), implying FY27E P/B of 1.6x.

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