L&T Finance is a pan-India lender with presence across 20 states and two union territories through 209 branches and 1,934 micro finance meeting centres. Its loan book grew by 18% year-on-year to Rs 93,015 crore at the end of September 2024. Of this, retail finance including farm equipment, rural business, urban and small and medium enterprises (SME) finance formed Rs 88,975 crore.
A conscious effort to make the loan book retail oriented has helped in improving the company’s margin profile over the past two years. Retail loans formed 96% of the loan book at the end of September 2024 compared with 58% at the end of September 2022. Net interest margin expanded to 8.9% from 6.9% during the period, reflecting higher profitability. In addition, the credit cost remained in a range of 2.2-2.6% implying a tight control over asset quality.
On the microfinance front, the company maintains a tight control on the selection criteria before lending to customers. For instance, as a policy, it does not lend to customers who have delayed due payments (a non-zero days past due or DPD). In addition, since 2020, it has been observing a discipline of not lending to clients who have overall debt of above Rs 2 lakh. To maintain the collection efficiency at a time when the microfinance segment is grappling with asset quality pressure, L&T Finance has reduced the customer accounts that a collection officer tracks to 460 from earlier 540. It has been able to retain the collection efficiency above 99%; it was 99.4% in the September quarter. To add further comfort, the company has nearly 100% provision coverage ratio (PCR) for its rural business. The PCR at the consolidated level fell to 71% in the September quarter from 76% in the year-ago quarter owing to write offs and some of the stage 1 (upto 30 DPD) and stage 2 (31-89 DPD) assets rolling on thereby increasing the stage 3 assets (90 DPD).
In the September quarter, net interest income increased by 18.6% year-on-year to Rs2,051 crore while net profit grew by 17% to Rs 696 crore. Gross non performing assets (GNPA) ratio fell marginally to 3.2% from 3.3%. Return on assets improved by around 20 basis points to 2.6%. At Tuesday’s closing price of Rs 145.5, the stock was available at a trailing P/B of 1.5. Analysts have set 12-month target price for the stock between Rs 180 and Rs 200 implying an upside of 24-38%.
