Morgan Stanley has maintained its Underweight rating on L&T Finance with a target price of ₹135, implying a 34% downside from the current market price of ₹203.50. While the company posted a 5% beat on PAT in Q1—driven by lower borrowing costs and higher net gains from fair value changes amid falling rates—the brokerage flagged emerging concerns that could weigh on future earnings.
A key concern for Morgan Stanley is the observable shift in the loan mix toward lower-yielding segments, which may begin to impact overall margins in the upcoming quarters. This portfolio realignment, while likely aimed at risk containment, could dilute return metrics.
The microfinance (MFI) segment, which forms 26% of L&T Finance’s assets under management (AUM), continued to show collection efficiency below normal levels at 99.4% in Q1, slightly up from 99.3% in Q4FY25 but still below the 99.7% reported a year ago. Collections in Karnataka—a state of concern in prior quarters—showed modest improvement to 98.2%.
Retail AUM growth, excluding gold loans, moderated to 17% YoY, while total AUM rose 18% YoY. For FY26, Morgan Stanley expects AUM growth to come in at 21%, signaling a steady expansion but tempered by the asset mix shift.
Given the risk of margin compression, continued sub-par MFI collection efficiency, and a rising tilt toward low-yield segments, the brokerage sees limited near-term upside in the stock.
Disclaimer: The brokerage view is based on publicly available research and does not constitute investment advice. Please consult a certified financial advisor before making any investment decisions.
