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L&T Finance (CMP - ₹265, Mcap - ₹66,406 crore, Target price – 310, Rating - BUY) – “Revival in MFI & gold loans to aid RoA…”

ICICIdirect Research 24 Oct 2025 DISCLAIMER

L&T Finance reported a steady performance in Q2FY26. Retail disbursements stood at ₹18,884 crore (up ~25% YoY, 7.8% QoQ), primarily led by personal loans and rural business finance. Retail book expanded 18% YoY to ₹1,04,607 crore, while consolidated AUM increased 15% YoY to ₹1,07,096 crore. NIM+Fees remained steady at 10.22%.

While LTF has navigated volatility in MFI well, credit cost remained elevated at 2.41% (2.98% - excluding ₹150 crore buffer utilized in Q2FY26). Credit costs trend is expected to moderate owing to 1) improvement in collection in Karnataka, 2) outstanding buffer of ₹125 crore and 3) implementation of Cyclops (recent tech initiative) in key businesses like two-wheeler and farm loans. 

Strategy to grow in risk calibrated manner with focus on gold loans and anticipated revival in MFI is expected to aid growth as well as margins. Increased adoption of technology is expected to aid efficiency and structural improvement in credit cost resulting in improvement in RoA. Expect credit off-take at 22-25% ahead, with further gradual improvement in RoA (currently at ~2.4%). Anticipating improvement in H2FY26, we remain positive on the stock (valuing the stock at ~2.5 FY27E BV).

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