L&T Finance Ltd

L&T Finance concluded FY26 with its highest-ever annual profit after tax of ₹3,003 Cr (excluding a one-time^📎 impact), marking a 14% YoY increase. The company reported a Q4FY26 PAT of ₹807 Cr, up 27% YoY, driven by record quarterly retail disbursements of ₹24,107 Cr, a 62% YoY increase. The retail book grew 26% YoY to ₹1,19,508 Cr, contributing to an overall consolidated book of ₹1,21,728 Cr, up 25% YoY. Consolidated RoA for Q4FY26 stood at 2.40%, an 18 basis points YoY improvement, while credit costs moderated to 2.64%, a 19 basis points reduction from the previous quarter.

Despite ongoing geopolitical tensions and volatile global conditions, India's economic activity remains resilient, with real GDP growth placed at 7.60% in FY26. Domestic demand is strong, supported by structural reforms and favorable financial conditions. However, the company remains cautious about potential downside risks from the West Asia conflict, particularly regarding fertilizer supply for the Kharif season and energy prices, and the potential impact of El Niño conditions on the rural economy. Management noted no visible impact on portfolios from the West Asia crisis so far but remains vigilant.

L&T Finance unveiled its Lakshya 2031 strategic plan, aiming for a Book growth CAGR of 20%+, credit costs of 2% or less, RoA between 3.0% and 3.2%, and RoE between 16% and 18%. For FY27, the company expects AUM growth of over 20%, stable NIMs+Fees in the 10-10.5% range, and credit costs trending lower to 2-2.2% by Q4FY27. The Lakshya 2026 RoA target of 2.8-3% was not met (achieved 2.4% in Q4FY26) due to the microfinance crisis, but management is hopeful of achieving 2.8% by Q4FY27.

The company continues to invest heavily in proprietary AI tools for sales, underwriting, collections, and operations, considering itself a pioneer in AI adoption in the Indian BFSI sector. Project Cyclops has outperformed industry benchmarks in the Two-Wheeler portfolio, and Project Nostradamus, an AI-driven portfolio management engine, is live in Two-Wheeler finance and will be extended to Personal Loans, Rural Business Finance, SME, and Farm businesses. These AI interventions have significantly lowered collection costs across urban finance products and improved productivity across all business lines.

All retail segments demonstrated strong growth. Rural Business Finance saw quarterly disbursements up 41% YoY to ₹7,208 Cr, with its book reaching ₹30,805 Cr. Urban Finance, comprising Two-Wheelers, Personal Loans, and Home Loans/LAP, recorded a 61% YoY jump in quarterly disbursements to ₹9,850 Cr, and its book grew 29% YoY to ₹59,048 Cr. Personal Loans showed exceptional growth with quarterly disbursements up 98% YoY to ₹3,786 Cr, and its book up 70% YoY to ₹14,666 Cr, driven by digital channels. Gold Finance also saw significant quarterly disbursement growth of 97% QoQ to ₹2,779 Cr.

The wholesale book continued its planned reduction, decreasing by 14% YoY from ₹2,582 Cr in FY25 to ₹2,220 Cr in FY26. The net security receipts (SR) book also reduced by 18% YoY from ₹5,862 Cr in FY25 to ₹4,808 Cr in FY26, primarily due to asset monetization and recoveries. Management expects significant resolution of the SR portfolio within the next three to four years, which will eventually aid in RoA expansion by releasing the drag from funding costs.

The annual ECL model refresh resulted in a release of ₹301 Cr of provisions, which were management overlays, with a corresponding increase in Stage 1 provisioning. Macro-prudential provisions of ₹125 Cr were subsumed into the ECL model, leading to an improved provision coverage on performing Stage 1 book from 0.52% to 0.80%. While Stage 3 PCR decreased from 73% to 68%, management asserts this is an adequate level of coverage and reflects prudent credit risk management, with remaining overlays in Stage 3.