Whalesbook
Emkay Global Elevates L&T Finance to 'Buy'
Emkay Global has upgraded L&T Finance Holdings to 'Buy' from 'Reduce,' setting a December 2026 target price of ₹350. This implies a potential 16% upside, valuing the company at 2.5x FY28 price-to-book. The brokerage cited improved visibility on asset quality, profitability, and expansion opportunities, noting the stock's outperformance and its positioning for future growth.
Emkay anticipates a 32% earnings per share compound annual growth rate over FY26-28, with return on assets (RoA) and equity (RoE) climbing to 3% and 16.4%, respectively. Key drivers include stable net interest margins (NIMs) and fee income, better cost ratios, and moderating credit costs due to technology-led underwriting.
Q3 Performance Aligns with Expectations
JM Financial highlighted that L&T Finance's recent quarter largely met expectations. Gross loan growth remained strong at +20% year-on-year, fueled by disbursements in microfinance and vehicle financing. Net interest income (NII) rose 18%, supported by a 22-basis point sequential margin expansion. Total NIM plus fees stood at 10.41%, within management guidance.
A one-time expense related to the new labor code did impact overall profits, causing a minor 2% miss against JM Financial's estimates. Asset quality improved sequentially, though credit costs rose to 2.9% due to provisioning on co-borrower exposures. JM Financial maintained an 'Add' rating with a ₹320 target, citing fair valuations after a significant rally.
Structural Profitability Gains
Motilal Oswal Research underscored structural improvements in profitability and credit metrics. Adjusting for one-time labor code costs, Q3FY26 profit after tax (PAT) rose 18% year-on-year to ₹760 crore. Net interest income increased approximately 13% year-on-year to ₹2,540 crore. The cost-to-income ratio remained steady at around 39.4%.
Credit costs, excluding prudential provisioning, fell to 2.74% from the previous quarter, signaling better asset quality. Motilal Oswal forecasts a loan book CAGR of about 22% and PAT CAGR of around 32% over FY26-28, with RoA/RoE improving to 2.7% and 15.4% by FY28. The brokerage reiterated a 'Buy' rating with a target price of ₹370.
Balanced Growth Outlook
Across brokerages, the consensus is that L&T Finance is entering a phase of structurally improved profitability. This is underpinned by a better product mix, strong underwriting, and disciplined credit growth, supported by technology adoption to manage costs. Analysts see selective expansion in retail lending segments driving sustainable growth, justifying a re-rating even at current valuations.