L&T Finance Limited: A Comprehensive Stock Analysis | Scrolls

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Aug 7
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by KarNivesh | 07 August, 2025

Executive Summary

L&T Finance Limited, a subsidiary of the prestigious Larsen & Toubro Group, has emerged as a key player in India's non-banking financial services (NBFC) space. Founded in 2008 and headquartered in Mumbai, it has made remarkable strides in recent years. With a market capitalization of ₹50,400 crores and a massive customer base of 2.6 crore served through over 13,000 distribution points, the company is undergoing a transformative journey backed by digital innovation and strategic clarity.

Strategic Repositioning and Lakshya 2026

The company recently changed its name from L&T Finance Holdings Limited to L&T Finance Limited in 2024 to mark a renewed focus and alignment with its growth path. At the heart of this transformation lies the "Lakshya 2026" strategy. This roadmap shifts the company’s emphasis from product-centricity to a customer-centric model, aiming to achieve more than 95% retailization—an ambitious target that has already been surpassed, reaching 98% as of Q1 FY2025.

Five-Year Financial Performance (FY2021–FY2025)

Revenue and Profit Growth

L&T Finance has posted a 4-year compound annual growth rate (CAGR) of 27.0% in revenue, reaching ₹96.69 billion in FY2025. More impressively, net income witnessed a 28.5% CAGR, reaching ₹26.44 billion in FY2025. Earnings per share (EPS) more than doubled from ₹4.49 in FY2021 to ₹10.61 in FY2025, reflecting a CAGR of 24.0%. These figures point to improving operational efficiency and a strategic shift to high-yielding retail segments.

Profitability and Margins

Profitability metrics have shown consistent improvement. Return on Equity (ROE) rose from 5.2% to 10.3%, and Return on Assets (ROA) climbed from 0.9% to 2.2% over the five years. The profit margin has remained steady between 27-31%, reflecting solid cost and pricing controls.

Strengthened Balance Sheet

As of FY2025, the company's total assets stand at ₹1,204.09 billion, up from ₹1,089.72 billion in FY2021. Total equity grew from ₹187.73 billion to ₹255.64 billion, showcasing strong capital management. Debt-to-equity ratio improved from 4.72 to 3.61, while the Capital Adequacy Ratio (CAR) reached 22.84%, offering ample headroom for future growth and regulatory compliance.

Stock Performance and Valuation

L&T Finance’s stock, as of August 2025, is priced at ₹201.67 with a market cap of ₹50,400 crores. The 52-week price range spans from ₹129.15 to ₹214.80, showing resilience and upward momentum. Over three years, the stock has appreciated by 169.97%, and by 20.59% in the past year alone.

From a valuation standpoint, the stock trades at a P/E ratio of 19.01x, which appears attractive given its earnings trajectory. A P/B ratio of 2.00x and a dividend yield of 1.34% further underline its value proposition for investors.

Shareholding and Governance

Promoters hold 66.16% of the company’s equity with no pledged shares, signaling robust promoter confidence. Institutional investors hold 20.29%, and retail and other investors make up the remaining 13.54%. The absence of pledging and consistent promoter holding reinforces strong governance and long-term commitment.

Business Segmentation and Model

L&T Finance operates through a diversified business model:

Rural Group Loans & Micro Finance – 29%
Farm Equipment Finance – 16%
Housing/LAP – 22%
Two-wheeler Loans – 13%
Personal Loans – 8%
SME Finance – 5%
Wholesale Finance – 6%

This portfolio reduces risk concentration and provides a balanced revenue stream across market segments.

Strategic Initiatives and Acquisitions

In 2025, the company made a significant move by acquiring the gold loan business of Paul Merchants Finance for ₹537 crore. This added a ₹1,350 crore loan book, 130 branches, and 700 employees, enabling L&T Finance to step into the high-yield gold loan segment. This strategic acquisition complements its existing rural portfolio and allows better cross-selling to its 1.6 crore rural customers.

Digital capabilities have also seen a leap forward with the launch of AI-based credit assessment tools and collaborations with platforms like Amazon, Cred, and PhonePe. The PLANET app has become central to the company’s customer interface, particularly in rural regions.

Competitive Landscape and Peer Comparison

Despite ranking fifth out of six major NBFC peers in terms of market cap, L&T Finance shows strong competitive metrics. The company has a P/E of 19.01x compared to the peer average of 24.9x, and a P/B of 2.00x versus a peer average of 3.5x. Its 1.34% dividend yield is second highest among its peers.

Strengths:

Backing from Larsen & Toubro Group
Attractive valuations
Diversified retail lending model
Strong digital presence

Areas of Improvement:

ROE of 10.34% is below the peer average of 33.2%
Lower market cap compared to leaders like Bajaj Finance
Need for tighter asset quality control in the microfinance segment

Asset Quality and Risk Measures

Gross Stage 3 assets have improved to 3.31%, with Net Stage 3 at 0.99% in Q1 FY2026. The company maintains a 71% provision coverage ratio, ensuring adequate protection against potential delinquencies.

Risk is actively managed, particularly in rural and microfinance areas. The company has taken a conservative approach in growth for higher-risk segments and has made ₹300 crores of macro-prudential provisions in rural business finance.

Outlook and Growth Drivers

Near-Term Catalysts:

Gold loan business expansion (60–70 new branches; targeting ₹2,000+ crores AUM)
Personal loan distribution via digital partnerships
Cross-selling opportunities
Deeper rural market penetration

Medium to Long-Term Opportunities:

Rising credit demand in India
Financial inclusion initiatives
AI and tech-led cost optimization
Strong ESG alignment for sustainable growth

Risks and Challenges

Sectoral Risks:

Regulatory changes affecting NBFCs
Asset quality pressure in microfinance and unsecured lending
Interest rate-related funding cost inflation
Rising competition from fintech and digital lenders

Company-Specific Risks:

Execution risks in post-acquisition integration
High microfinance exposure
Tech investment demands
Rural economic instability

Market Sentiment and Analyst View

Analyst consensus rates the stock as a "Buy" with an average 12-month price target of ₹218.11, implying a 6.44% upside. UBS recently downgraded to “Neutral” due to valuation concerns, though it increased the target to ₹210.

Indicators support positive sentiment:

Increased mutual fund holdings
Solid stock momentum
Strategic progress on Lakshya 2026

Final Takeaway: Investment Potential

For Growth Investors:

The stock offers high upside potential through strong retail focus, digital innovation, and strategic execution.

For Value Investors:

A reasonable P/E of 19.01x and P/B of 2.00x present a solid value play among NBFC peers.

For Income Investors:

A 1.34% dividend yield with consistent payouts backed by improving cash flows makes it suitable for income-focused portfolios.

Suggested Approach:

Entry: ₹200–₹205 range
Time Horizon: 2–3 years
Risk Profile: Moderate to high
Allocation: 3–5% of diversified portfolio

Conclusion

L&T Finance Limited offers a compelling case for investors seeking a stable yet growing presence in India’s credit ecosystem. With strong promoter backing, a successful strategic pivot toward retailization, and a clear growth roadmap through Lakshya 2026, the company is well-positioned to thrive in India’s dynamic NBFC landscape. The recent gold loan acquisition, enhanced digital capabilities, and solid risk management framework further strengthen its long-term investment case.