Reduce Larsen and Toubro Finance; target of Rs 150: Emkay Global Financial

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26 Aug, 2025 12:21

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L&T Finance (LTF) reported a weaker than estimated set of numbers, with changing asset composition and interest-rate cuts in MFI causing NIM compression (35bps QoQ). This also led to PPoP and credit cost remaining elevated at 2.54% despite utilization of Rs3bn of macroprudential provision (including this, credit cost would be 3.8%). LTF’s technology initiatives and sharper focus on credit underwriting is showing early signs of success, with bounce rates in 2Ws and early non-starters in Farm Finance showing marked improvement following Project Cyclops. Looking ahead, given the headwinds in rural finance(further aggravated by state-specific regulations), NIM + Fee yield would see pressure in FY26, and opex and credit cost are likely to stay sticky leading to only limited RoA improvement.

To reflect the Q4FY25 developments and outlook, we tweak our estimates which results in -28bps/-17bps changes in FY26E/27E RoA and -11%/-9% changes in FY26E/27E EPS. We reiterate REDUCE on the stock while raising our Mar-26E TP by ~7% to Rs 150 (from Rs140), implying FY27E P/B 1.3x.

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