L&T Finance RoA crosses FY26 target in Q1 FY24, brokerages cheer

L&T Finance Holdings share price opened 3 percent higher on July 20 as the company managed to exceed several of its FY26 goals in Q1 FY24 itself. Retail RoA (return on assets) crossed the ‘Lakshya FY26’ target of 3 percent and came in at 3.08 percent in the quarter ended June.

The company on July 19 reported a 103 percent rise in net profit to Rs 531 crore for the first quarter of the current financial year. In the similar period last year, the net profit was Rs 262 crore.

The jump in net profit was on the back of steady net interest margins and reduction in credit cost, said the company.

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By 9:30 am, the stock had erased its opening gains and was quoting at Rs 133, down 0.8 percent from previous close. The stock is about 6percent away from its 52-week high.

L&T Finance’s credit cost for the quarter came in at 2.6 percent. However, analysts had expected credit cost to be even lower at 2.4 percent as the company moves towards a complete retail book.

The NBFC’s retail asset quality improved sequentially with gross stage 3 assets ratio at 3.21 percent and net stage 3 at 0.70 percent.

Domestic broking firm Motilal Oswal noted, “The company continues to focus on digital initiatives to sustain its retail growth momentum. Credit costs should moderate in the near-term driven by further reduction in the wholesale book and improvement in retail asset quality that can translate into sustainable retail RoA of ~3 percent.”

Rapid retailisation

The company achieved ‘Retailisation’ of 82 percent in Q1 FY24 itself, much ahead of Lakshya 2026 goal of greater than 80 percent retailisation. “In fact, we have been able to achieve most of our goals almost 3 years in advance,” MD and CEO Dinanath Dubhashi said.

Currently, retail portfolio mix in L&T Finance Holdings’ book stands at 82 percent, compared with 54 percent in the similar period last year, and 75 percent in Q4 FY23.

For the quarter ended June, retail disbursement grew 25 percent year-on-year to Rs 11,193 crore and retail book stood at Rs 64,274 crore. Meanwhile, the wholesale book saw an accelerated and steep reduction of 65 percent YoY to Rs 14,292 crore.

Morgan Stanley has an Equal-Weight rating on the stock with target price of Rs 105 per share. It noted that the NBFC has reported a 2 percent PAT beat.

Analysts at Motilal Oswal will revise estimates after the company’s earnings call. They currently have a Buy rating on the stock with target at Rs 134.

“It will be interesting to understand if there will be any change in strategy after the appointment of CEO-designateSudipta Roy (ex-ICICI) who will succeed the current MD/CEO Dinanath Dubhashi,” Motilal Oswal said.

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