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    L&T Finance Ltd

    LTF
    Financial Services·19 Jan 2026
    Management Summary

    L&T Finance delivered a robust Q3 FY26, achieving record core PAT and retail disbursements, driven by strong retail franchise growth and improved operational efficiencies. The company saw significant moderation in credit costs, supported by digital transformation initiatives like Project Cyclops, and maintained strong asset quality metrics. While facing one-time exceptional charges, management expressed confidence in sustaining momentum and achieving its Lakshya 2026 targets.

    Highlights

    5

    • Highest ever quarterly core PAT of ₹760 Cr, up 21% YoY, and reported PAT of ₹739 Cr, up 18% YoY, despite one-time impacts.

    • Record retail disbursements of ₹22,701 Cr, marking a 49% YoY and 20% QoQ growth, leading to a retail book of ₹1,11,990 Cr, up 21% YoY.

    • Consolidated NIMs + Fees improved by 19 bps QoQ to 10.41%, driven by stable yields, efficient liability management, and the lowest ever Weighted Average Cost of Borrowing (WACB) at 7.25%.

    • Credit cost moderated to 2.83% (2.74% excluding one-time charge), a 15 bps QoQ reduction, with microfinance collection efficiencies improving to 99.70% (0 DPD pan India).

    • Project Cyclops showing green shoots with Two-Wheeler Net Non-Starter (NNS) down from 2.36% to 0.41% and Farm NNS from ~1.50% to ~0.4%.

    Concerns

    3

    • One-time exceptional impact of ₹29 Cr due to New Labour Code and a ₹23 Cr charge for co-borrower provisions affected reported PAT and credit cost.

    • Consolidated RoA after exceptional items declined 10 bps QoQ to 2.31%, though up 4 bps YoY.

    • Consolidated RoE declined 26 bps QoQ to 11.07%, despite being up 86 bps YoY.

    Key financials

    Single quarter

    06 metrics
    1. 01Consol PAT (after exceptional)₹739 Cr+18%YoY
    2. 02Retail Disbursements₹22,701 Cr+49%YoY
    3. 03Retail Book₹1.12L Cr+21%YoY
    4. 04Consol NIMs + Fees10.4%+0.2%QoQ
    5. 05Consol RoA (after exceptional)2.3%+0.0%YoY

    Segment breakdown

    Rural Business Finance
    ₹28,976 Cr26.2%
    Home Loans & LAP
    ₹28,682 Cr25.9%
    Farmer Finance
    ₹16,671 Cr15.1%
    Two-Wheeler Finance
    ₹13,913 Cr12.6%
    Personal Loans
    ₹12,810 Cr11.6%
    SME Finance
    ₹7,946 Cr7.2%
    Gold Finance
    ₹1,738 Cr1.6%
    Treemap· Share of Book Size

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    The company has ₹5,000 Cr of Security Receipts (SRs) on its balance sheet, with full resolution expected within 2-3 years. Management also noted having a 'good amount of surplus capital available' for productive assets.

    Guidance & targets

    17
    CategoryTargetPriority
    Retailisation
    Retailisation percentage
    >95%
    		High
    Retail Book Growth
    Retail book CAGR
    25%
    		High
    Asset Quality
    Retail GS3
    <3%
    		High
    Asset Quality
    Retail NS3
    <1%
    		High
    Profitability
    RoA
    2.8%-3.0%
    		High
    Profitability
    NIMs + Fees Corridor
    10-10.5%
    		High
    Credit Cost
    Credit Cost Corridor
    2-2.2%
    		High
    Credit Cost
    Microfinance Steady State Credit Cost
    3%
    		Medium
    Credit Cost
    Two-Wheeler Credit Cost
    below 3%
    		High
    Branch Expansion
    Gold Loan Branches
    330+
    		High
    Digital Transformation
    Project Cyclops Personal Loan Roll-out
    full roll-out
    		High
    Digital Transformation
    Project Nostradamus Two-Wheeler Implementation
    full implementation
    		High
    Digital Transformation
    Project Nostradamus Personal Loan & RBF Implementation
    full implementation
    		High
    Security Receipts Resolution
    Full Resolution Timeline
    2-3 years
    		High
    Portfolio Mix
    Secured to Unsecured Ratio
    60:40
    		High
    Growth
    Microfinance Growth Rate
    15-20%
    		High
    Operating Efficiency
    Cost to Income Ratio
    below 40%
    		Medium

    What to watch in Q4 FY26

    5

    Credit Cost Trajectory

    next quarter (Q4FY26) and towards Q4FY27
    Current2.83% (reported), 2.74% (excl. one-time)
    TargetContinued moderation towards 2-2.2% corridor

    Why it matters

    Credit cost reduction is a key driver for RoA improvement and achieving Lakshya 2026 targets.

    This trajectory of paring of credit cost will culminate in the achievement of the guided 2-2.2% corridor by Q4FY27.

    Risks & concerns

    4
    RiskSeverity

    Global uncertainties and external headwinds

    Global uncertainties persist at highly elevated levels, though the Indian economy has demonstrated resilience. — Management acknowledged

    medium

    One-time exceptional charges impacting profitability

    A ₹29 Cr impact from the New Labour Code and a ₹23 Cr charge for co-borrower provisions affected reported PAT and credit cost this quarter. — Management acknowledged

    low

    Non-metronomic credit cost trajectory

    Management noted that credit cost improvement may not be linear or 'metronomic' quarter-on-quarter, depending on collection efficiencies. — Management acknowledged

    low

    Higher proportion of unsecured loans in portfolio

    Currently, unsecured loans constitute ~44% of AUM, higher than the stated objective of 40%, requiring active balancing with secured assets. — Management acknowledged

    medium

    Q&A highlights

    8

    “So, FY27 Q4, we believe will be a much better revisit. We are, in fact, waiting for that day and that quarter because by then, most of our book would have been seasoned through the using the Cyclops underwriting tool, which would mean that directionally, the overall models would start taking into account the benefit flowing through slowing down of slippages, which are quite evident.”

    Analyst sought clarity on the long-term credit cost trajectory, especially given the annual ECL model reset, and management provided confidence in future improvements driven by seasoned Cyclops-underwritten portfolios.

    asked by Mahrukh Adajania

    2 min read6 chapters

    Detailed Narrative

    01

    Robust Q3 FY26 Financial Performance

    L&T Finance reported its highest ever quarterly core PAT of ₹760 Cr, a 21% YoY increase, with reported PAT at ₹739 Cr after a ₹29 Cr one-time📎 impact from the New Labour Code. Retail disbursements reached a record ₹22,701 Cr, growing 49% YoY and 20% QoQ, driving the retail book to ₹1,11,990 Cr, up 21% YoY. Consolidated NIMs + Fees improved by 19 bps QoQ to 10.41%, supported by the lowest ever Weighted Average Cost of Borrowing (WACB) at 7.25%.

    02

    Strategic Digital Transformation & Project Cyclops

    The company's digital initiatives, Project Cyclops and Nostradamus, are showing promising results. Project Cyclops, fully implemented in Personal Loans by Q4FY26, has led to significant improvements in asset quality, with Two-Wheeler Net Non-Starter (NNS) reducing from 2.36% to 0.41% and Farm NNS from ~1.50% to ~0.4%. Project Nostradamus, an AI-driven portfolio management engine, is live in beta for Two-Wheeler Finance, with full implementation planned for Personal Loan and Rural Business Finance by H1FY27.

    03

    Improving Asset Quality & Credit Cost Trajectory

    Credit cost moderated to 2.83% in Q3FY26, a 15 bps QoQ reduction, and 2.74% excluding a one-time📎 ₹23 Cr charge for co-borrower provisions. Microfinance collection efficiencies improved, with Karnataka monthly efficiency rising from 99.18% to 99.56% and pan India '0 DPD' improving to 99.70%. The Provision Coverage Ratio (PCR) increased from 70% to 72% QoQ, and the company aims for a credit cost corridor of 2-2.2% by Q4FY27.

    04

    Retail Business Growth Momentum

    All retail segments demonstrated strong growth, with Rural Business Finance disbursements up 47% YoY to ₹6,740 Cr, and Personal Loans growing 118% YoY to ₹3,574 Cr. Gold Loan disbursements surged 43% QoQ to ₹1,408 Cr, with plans to expand to over 330 branches by end of FY26. The company onboarded 7.0 lakh new customers this quarter, up from 5.9 lakh last quarter, reflecting robust demand and effective customer acquisition strategies.

    05

    Lakshya 2026 Goals on Track

    L&T Finance is progressing well towards its Lakshya 2026 goals, having achieved 98% retailisation (against a >95% target) and a 28% CAGR in retail book growth (exceeding the 25% target). Retail GS3 and NS3 levels are maintained below 3% and 1% respectively. The company reiterated its target of achieving a RoA of 2.8%-3.0% by Q4FY27, driven by continued business momentum and improving credit costs.

    06

    Capital Allocation & Funding Strategy

    The company maintains a focus on optimizing its capital structure and funding costs, achieving the lowest ever WACB at 7.25%. Management indicated a strategic objective to achieve a 60:40 secured to unsecured portfolio mix, actively balancing the current ~44% unsecured share through growth in secured assets like Gold Loans and exploring semi-secured options. The resolution of ₹5,000 Cr in Security Receipts on the balance sheet is expected within 2-3 years, contributing to future macro-prudential provisions.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.