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    L&T Finance Ltd

    LTF
    Financial Services·21 Jul 2025
    Management Summary

    L&T Finance Ltd reported a strong Q1 FY26 with PAT of Rs. 701 Cr, up 10% QoQ and 2% YoY, and its highest-ever consolidated book of Rs. 1,02,314 Crore. The company achieved a RoA of 2.37% and saw overall disbursements grow 18% YoY to Rs. 17,522 Crore. While Karnataka's collection efficiency is still normalizing, the company is confident in its strategic initiatives, including the successful integration of the Gold Loan business and the ongoing rollout of Project Cyclops, to drive future growth and asset quality improvements.

    Highlights

    5
    • Profit After Tax (PAT) for Q1FY26 stood at Rs. 701 Cr, marking a 10% QoQ and 2% YoY increase.

    • The consolidated book reached its highest-ever at Rs. 1,02,314 Crore, demonstrating robust growth.

    • Return on Assets (RoA) improved by 15bps QoQ to 2.37%, indicating enhanced profitability.

    • Overall quarterly disbursements grew by 18% YoY to Rs. 17,522 Crore, driven by strong performance across all business lines.

    • The retail book grew 18% YoY to Rs. 99,816 Cr, reflecting the strength of the retail business franchise and effective execution.

    Concerns

    3
    • Collection efficiency in Karnataka is taking longer to normalize than anticipated, with full stabilization expected by October 2025.

    • Rs. 300 Cr of macro-prudential provisions were utilized in Q1FY26 to speed up normalization in Karnataka.

    • A slight uptick in repeat customers in MFI was observed, which the company aims to normalize as new customer additions increase.

    What Changed2

    vs Q2 FY26

    Guidance items15 → 14 (-1)Risks discussed5 → 3 (-2)

    Key financials

    Single quarter

    07 metrics
    1. 01PAT₹701 Cr+2%YoY
    2. 02Consolidated Book₹1.02L Cr+15%YoY
    3. 03Retail Book₹99,816 Cr+18%YoY
    4. 04RoA2.4%+0.1%QoQ
    5. 05RoE10.9%+0.7%QoQ

    Segment breakdown

    DisbursementsBook Size
    Rural Business Finance₹5,618 Cr₹26,616 Cr
    Farmer Finance₹2,200 Cr₹15,756 Cr
    Two Wheelers₹2,128 Cr₹12,331 Cr
    Personal Loans₹1,942 Cr₹9,382 Cr
    Home Loan and LAP₹2,780 Cr₹26,464 Cr
    SME Finance₹1,273 Cr₹6,964 Cr
    Gold Finance
    Heatmap· 2 shared metrics

    Capital allocation

    1
    high confidence
    CategoryHeadline
    M&A

    Paul Merchants Finance Pvt. Ltd.'s Gold Loan business

    acquisition · integrated · AUM ₹1,300 crores

    Guidance & targets

    14
    CategoryTargetPriority
    Profitability
    RoA trajectory
    2.8%
    High
    Asset Quality
    Credit Cost
    2.3% to 2.5%
    High
    Asset Quality
    Credit Cost (Full FY)
    2.4% to 2.5%
    High
    Asset Quality
    Two Wheeler Finance Risk Cost Regime
    Very low risk cost regime
    High
    Business Growth
    Retailisation
    98%
    High
    Business Growth
    Retail Asset Book Growth (CAGR)
    28%
    High
    Business Growth
    Gold Loan Branches
    300+
    High
    Business Growth
    Rural Business Finance Disbursements (monthly average)
    Rs. 1,900-2,000 crores
    Medium
    Business Growth
    Overall Growth (Q2)
    Decent growth
    Medium
    Business Growth
    Overall Growth (H2)
    Very good growth
    Medium
    Technology Implementation
    Project Cyclops full implementation (Farm Equipment Finance)
    Complete
    High
    Technology Implementation
    Project Cyclops full implementation (SME Finance)
    Complete
    High
    Technology Implementation
    Project Cyclops full implementation (Personal Loans)
    Complete
    High
    Technology Implementation
    Project Nostradamus beta launch
    Beta launch
    High

    Karnataka collection efficiency normalization

    By October 2025
    CurrentGradual 20-30 bps improvement monthly, but not fully normalized.
    TargetFull stabilization

    Why it matters

    Karnataka's recovery is key to overall asset quality improvement and reduced macro-prudential provision utilization.

    I think, overall, the Karnataka, sort of collections sluggishness will take another -- according to me, another 3 to 4 months to fully stabilize, which brings us to about October 2025.

    How to verify

    risks_and_concerns[risk='Karnataka collection efficiency normalization delay']

    Risks & concerns

    3
    RiskSeverity

    Karnataka collection efficiency normalization delay

    Full normalization expected by October 2025, taking 3-4 months longer than anticipated.Management acknowledged

    medium

    Microfinance industry challenges

    Industry challenges are dissipating, but full dissipation will take another two quarters.Management acknowledged

    medium

    Seasonal fluctuations in Q2

    Q2 typically sees seasonal fluctuations due to Shradh, making it a tight quarter for most lenders.Management acknowledged

    low

    Q&A highlights

    8

    “On the first question, Karnataka is stabilizing fast. With every passing month, collection efficiencies are ranging from a gradual 20 to 30 basis points improvements with every passing month. And you are right, a large amount of the sort of flow forwards that was accounted for by the macro prudential provisions this quarter came in from Karnataka, which was obviously an event that the industry had not planned for.”

    Addresses a key concern about asset quality and the specific regional challenge, providing a timeline for stabilization.

    asked by Mahrukh Adajania

    3 min read6 chapters

    Detailed Narrative

    01

    Q1 FY26 Financial Performance Highlights

    L&T Finance Ltd reported a strong Q1 FY26 with Profit After Tax (PAT) of Rs. 701 Cr, marking a 10% QoQ and 2% YoY increase. The company achieved its highest-ever consolidated book of Rs. 1,02,314 Crore, growing 15% YoY, with the retail book contributing Rs. 99,816 Cr, up 18% YoY. Return on Assets (RoA) improved by 15bps QoQ to 2.37%, and Return on Equity (RoE) increased by 73bps QoQ to 10.86%. Overall quarterly disbursements were robust at Rs. 17,522 Crore, an 18% YoY growth.

    02

    Macroeconomic Outlook and Rural Sentiment

    The Indian economy continues to be a bright spot with a projected growth of 6.5% in FY25 and FY26, supported by strong domestic catalysts and sound macroeconomic fundamentals. Monsoon season is progressing well, with cumulative rainfall 10% above the Long Period Average and 80% of geographical areas receiving normal to above-normal rainfall. This positive agricultural outlook, combined with strong cash flows from the Rabi season, fosters hopeful rural sentiments, which bodes well for the company's significant rural businesses. Domestic inflation has declined to a six-year low of 2.1% in June 2025, and the RBI lowered policy rates by 75 bps, injecting liquidity.

    03

    Strategic Initiatives and Digital Transformation

    The company is aggressively implementing its digital transformation agenda. Project Cyclops, the AI-ML based credit underwriting engine, is now fully implemented in Two Wheeler Finance and is being rolled out in Farm Equipment Finance (20% of dealerships, full implementation by Q2FY26) and SME Finance (full deployment by Q2FY26), with extension to Personal Loans by Q3FY26. Early results from Cyclops are encouraging, with Net Non-Starters in TW reducing to 0.34% from 2.36% in 5 months. Additionally, Project Nostradamus, an AI-driven portfolio management engine, is slated for a beta launch in September 2025 (Q2FY26).

    04

    Gold Loan Business Integration and Expansion

    L&T Finance successfully integrated the acquired Gold Loan business of Paul Merchants Finance Pvt. Ltd. within two months, amalgamating 130 branches, 700+ employees, and a book of ~Rs. 1,300 Cr. This high-yield secured product is expected to add significant value and serve as a cross-sell opportunity to the company's ~65 lakh active customers. The company plans to expand its Gold Loan branch network to over 300 by the end of FY26, with new Sampoorna branches offering multiple products including Micro-LAP, SME, and Personal Loans.

    05

    Asset Quality and Credit Cost Management

    While Retail GS3 and NS3 levels remained close to threshold (GS3<3%, NS3<1%), the consolidated GS3 and NS3 stood at 3.31% and 0.99% respectively. The company utilized Rs. 300 Cr of macro-prudential provisions in Q1FY26, primarily due to flow-forwards from Karnataka, where collection efficiency normalization is taking longer than anticipated, expected by October 2025. Management targets a credit cost trajectory of 2.3% to 2.5% by Q4 FY26 exit, with an average of 2.4% to 2.5% for the full FY. They expect a very low risk cost regime in Two Wheeler Finance post Q3.

    06

    Progress Towards Lakshya 2026 Goals

    L&T Finance demonstrated strong progress towards its Lakshya 2026 goals. Retailisation increased from 97% to 98% this quarter, surpassing the target of 95%. The retail asset book growth stood at 28% CAGR as of June 30, 2025, exceeding the 25% CAGR target over the four-year plan period. The company continues to focus on sourcing prime and near-prime customers, with the prime customer share in Two Wheeler Finance disbursements increasing to 84% in June 2025.

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