HDFC Securities has picked L&T Finance Ltd. (LTF) as a top Diwali stock for Samvat 2081, with a buy recommendation in the range of ₹153-170 and a target price of ₹219. The company’s strong focus on expanding retail lending, combined with its move to reduce reliance on wholesale lending, positions it for continued growth.
About the Company
L&T Finance Ltd., a subsidiary of Larsen & Toubro, is a leading Non-Banking Financial Company (NBFC) in India, offering a wide range of financial products and services across retail, corporate, housing, and infrastructure sectors. With a total loan book size of approximately ₹90,000 crore and a presence across 21 states in India, LTF continues to build its retail portfolio, targeting 80% retail business by FY26. The company has also set a goal of reducing its Gross/Net Non-Performing Assets (NPA) below 3%/1% while maintaining a Return on Assets (RoA) of 2.8-3%.
Valuation and Recommendation
L&T Finance has been actively reducing its dependence on wholesale lending, shifting its focus toward a diversified retail financing model. The company expects an 18% growth in advances over FY24-FY26, making the stock an attractive option at current valuations. HDFC Securities recommends buying in the range of ₹153-170, with a target price of ₹219 (2.0x FY26E ABV) by next Diwali.
Key Financials (FY22-FY26E):
- Net Interest Income (NII): ₹5,950 crore (FY22) to ₹9,868 crore (FY26E)
- Pre-Provision Operating Profit (PPOP): ₹2,932 crore (FY22) to ₹6,272 crore (FY26E)
- Profit After Tax (PAT): ₹1,070 crore (FY22) to ₹3,520 crore (FY26E)
- Earnings Per Share (EPS): ₹4.3 (FY22) to ₹14.1 (FY26E)
- Return on Assets (RoA): 1.0% (FY22) to 2.6% (FY26E)
- Return on Equity (RoE): 5.5% (FY22) to 13.2% (FY26E)
Key Triggers
- Retail Disbursement Growth: LTF recorded ₹15,000 crore in disbursements for two consecutive quarters, with a 33% YoY growth in retail disbursements driven by sectors such as 2W loans and home loans.
- Efficiency Gains Through Mergers: LTF has merged its various financial services companies, consolidating its lending operations and freeing up ₹3,000 crore in liquidity, which is expected to boost high-yielding retail loans.
- Digital Credit Engine: The company has invested in its AI/ML-powered credit engine, Cyclops, to improve customer assessments and enhance underwriting capabilities, supporting future growth.
Key Concerns
- Microfinance Exposure: Around 45% of LTF’s loan book is tied to microfinance and farm equipment loans, making it susceptible to risks in rural areas, especially if adverse weather or economic conditions affect asset quality.
- Competition in Retail Lending: With many NBFCs and banks expanding their share of retail loans, LTF could face increased competition in growing its retail portfolio.
- Rising Interest Rates: Higher interest rates could raise the cost of borrowing for LTF, potentially impacting margins if the company is unable to pass on the costs to customers.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
