Buy Larsen and Toubro Finance; target of Rs 205: ICICI Securities

ICICI Securities research report on Larsen and Toubro Finance

L&T Finance (LTF) reported PAT of INR 6.3bn, up 2% QoQ/15% YoY in Q4FY25, translating into RoA of 2.2% and RoE of 10%. In line with guidance, LTF utilised macro prudential buffer of INR 3bn (INR 1bn utilised in Q3FY25) for its rural business finance (RBF) portfolio. As a result, credit cost (before buffer utilisation) stood at 3.8%, while Q4FY25 reported credit cost (post buffer utilisation) was 2.54%. Overall, for FY25, it ended with 2.5% credit cost despite the challenging environment, especially for RBF. This is also in line with its historical credit cost average for the past decade. Considering the challenging RBF environment, LTF has consciously slow down on growth, wherein disbursements were lower 2–3% QoQ as well as YoY; while it ended FY25 with overall AUM growth of 14% and 19% in retail portfolio.

Outlook

Given the relatively lower multiple vs. historical average coupled with improving RoA and PAT trajectories, we maintain BUY with a revised TP of INR 205 (from INR 185), as we roll over to FY27E ABV vs. FY26E with an unchanged target multiple of ~1.7x, which is equal to its one-year forward P/B mean of 10 years.