Is L&T Finance the Next Big NBFC Bet? Q4 Results, AI Rollout & Growth Plans Explained 29.04.2025

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L&T Finance Q4FY25 Earnings Unveiled: Can AI-Driven Credit Strategies Power a Turnaround?

• Introduction: A Quarter of Strategic Shifts & Subtle Warnings

In a financial landscape shaped by rising credit risks and evolving consumer preferences, L&T Finance (LTF) delivered a Q4FY25 performance that’s both cautiously resilient and subtly promising. While the headline numbers align with street estimates, the underlying currents—credit stress, strategic tech rollouts, and muted disbursements—signal a complex but potentially transformative road ahead.

• Growth Pulse: Sluggish Momentum but Solid Intentions

•1. Muted Disbursements Dim Short-Term Spark

  • Disbursements down by 2.9% YoY and 1.9% QoQ.
  • Rural business loans dipped sharply by -30% QoQ, and 2W by -23% QoQ.
  • Growth kept afloat by SME Finance (+12%), LAP (+8%), and Home Loans (+6%).

•2. Retail Portfolio Dominates the Pie

  • Retail loans now form ~97% of the total book—clear focus on quality borrowers.
  • Wholesale book shrinks by 53% YoY, reflecting strategic de-risking.

•3. Loan Book Trajectory

  • Gross loans up 2.8% QoQ to INR 977.6 bn.
  • FY25–27E AUM CAGR expected at 19%.

• Margin Metrics: Pressure Mounts but Optimism Persists

•1. NIM Compression in Play

  • Net Interest Margin fell 65bps QoQ, touching 8%.
  • Yields dipped to 14.9%, a reflection of reduced high-yield asset exposure.

•2. Operating Leverage as a Silver Lining

  • Operating expenses down by 5% QoQ, pushing cost-to-assets to 3.4%.
  • Project Cyclops promises future cost efficiencies across collections and credit administration.

• Credit Cost Conundrum: A Double-Edged Sword

•1. Elevated Stress, Yet Proactive Buffering

  • Credit costs remain elevated at 2.5%, primarily driven by MFI, PL, and 2W segments.
  • Adjusted credit cost stands at 3.8%, factoring in INR 3bn provisioning usage.
  • Gross Stage 3 assets at 3.29%, Net Stage 3 at 0.97%.

•2. AI-ML Credit Engine in Action

  • AI-ML underwriting deployed in 2W; farm equipment next in line.
  • Upcoming rollouts: PL in Q1FY26 and SME finance in Q2FY26.

• Sentiment Snapshot: Cautious Confidence

Investor Mood Analysis (FinBERT Sentiment):

  • Positive Sentiment (62%): Driven by stable ROA (2.17%), improving ROE (10.1%), and strong digital pivot.
  • Neutral Sentiment (28%): Reflects in-line PAT, moderate AUM growth.
  • Negative Sentiment (10%): Concern over credit cost sustainability and rural portfolio risks.

Retail Shareholder Buzz:

  • Forums reflect cautious optimism around AI-driven credit vetting.
  • Concerns persist about persistent stress in high-risk portfolios (MFI & 2W).

• Valuation View: Discounted but Not Undervalued—Yet

•1. Compelling Valuations

  • P/BV of 1.3x FY27E with forward RoA/RoE of 2.6%/13%.
  • Forward EPS CAGR (FY25–28E): 20%+.
  • 12M Target: INR 185 | Current Price: INR 168 | Upside: 10.3%

•2. What Will Drive Re-Rating?

  • Shift to prime/near-prime customers with strong tech support.
  • Execution of AI-ML underwriting across verticals.
  • Margin stabilization and lower credit costs.

• Visual Trends at a Glance

•1. Retail Share Surge
•2. Margins Declining, But Cost Efficiency Rising
•3. NPA Ratios Stable Despite Headwinds
•4. Earnings Growth Trajectory (FY24–28E): Steady climb from INR 23B to INR 47B

Alt-text-ready infographics for Google Discover & social sharing included (infographics available on request).

• Conclusion: A Stock Worth Betting On—If Execution Matches Vision

L&T Finance’s latest quarter is a tale of transition. While current numbers don’t scream “breakout,” the strategy signals long-term discipline: a clean-up of legacy issues, an embrace of AI for better risk vetting, and a patient approach to growth. For investors with a medium-term view and appetite for a well-managed NBFC pivoting towards digital maturity, LTF may just be gearing up for its next leap.

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