LTF - L&T Finance Limited Share Price

In its Q2 FY26 earnings call, management of L&T Finance expressed an optimistic outlook supported by positive macroeconomic trends, highlighting India's resilient growth amidst global uncertainties. Key forward-looking points include the expectation of sustained credit demand bolstered by buoyant government capital expenditure, GST 2.0 reforms, and improving financial conditions. The management acknowledges the favorable agricultural prospects, despite some weather-related challenges, and projects that lower inflation and rising capacity utilization will further support growth.

Financially, L&T Finance reported a consolidated PAT of Rs.735 Cr, marking a growth of 5% quarter-over-quarter (QoQ) and 6% year-over-year (YoY). The retail book crossed Rs.1 lakh Cr, reaching Rs.1,04,607 Cr, exhibiting an 18% YoY growth. Notably, the company recorded its highest-ever quarterly disbursement of Rs.18,896 Cr, reflecting a 25% increase YoY, driven primarily by organic expansions and enhanced collection efficiencies, especially in microfinance. The rural finance segment alone saw disbursements of Rs.6,316 Cr, which is 16% higher YoY.

Looking ahead, management anticipates a downward trajectory in overall credit costs for 2H FY26, thanks to successful initiatives like Project Cyclops"”a digital underwriting engine that enhances risk assessment and credit quality. They expect that as these initiatives scale, credit costs will trend towards the medium-term target of around 2%.

The company plans to maintain a customer acquisition focus and strengthen technological capabilities, expanding their operations by increasing the number of gold loan branches to 330+. The management is committed to risk-calibrated growth while maintaining a healthy mix of secured and unsecured lending. Overall, they express confidence in leveraging technological advances and favorable market conditions to meet their financial and strategic goals.

Here are the key questions and responses from the Q&A section of the earnings transcript.

Question 1: Given that macro prudential provisions are largely used, would it be prudent for us to rebuild the provisions in good times as they have helped in bad times?
Answer: Yes, we are committed to rebuilding macro prudential provisions when the opportunity arises, specifically from realizations in our ARC portfolios over the next 18-24 months. We will focus on using over realizations from resolved assets to rebuild these provisions.

Question 2: The housing disbursements are a little soft on a sequential basis. Are you focusing on other segments because they are higher yielding?
Answer: Yes, post-rate cuts, we are cautious about entering a rate war in Home Loans, focusing instead on Loan Against Property, leading to moderation in home loan growth. We expect this trend to continue in the next couple of quarters while evaluating ways to maintain home loan yields.

Question 3: Do you foresee the growth in the BFSI segment sustaining?
Answer: Yes, I see it sustaining. The asset quality clouds have largely resolved, and there's strong demand in the market. Growth in sectors like personal loans and Two-Wheelers suggests positive prospects, bolstered by GST 2.0 reforms.

Question 4: What guidance do you provide on credit costs over the medium term?
Answer: We aim for a credit cost trajectory around 2%, with advancements from Project Cyclops in underwriting expected to bring this closer in FY27. However, exact timing is uncertain due to market contingencies.

Question 5: What improvements have you seen in asset quality parameters like bounce rate reductions since implementing Project Cyclops?
Answer: Early indicators from Project Cyclops in SME financing are promising, but concrete improvements will be clearer after deeper deployment. We expect to discuss more detailed insights during our Digital Day on November 6th.

Feel free to reach out for any further assistance!