LTF Q1 FY27 earnings call.

Guidance to track

• Management committed to achieving credit cost of 2% to 2.2% by Q4 FY27, down from current 2.54%, through continued Cyclops implementation across businesses, improved collections infrastructure, and portfolio seasoning. FY28 expected to maintain or improve upon this range.
• Targeting ROA of 2.8% by Q4 FY27, improving from current 2.48% (up 11bps YoY), with path toward Luxure 2031 target of 3-3.2% ROA. Key levers include 20bps from ARC portfolio drag resolution, 30-40bps from credit cost improvement, and operating leverage from technology investments.
• NIM plus fees guidance corridor of 10% to 10.5% maintained through mix management (accelerating high-yielding products like gold loans, personal loans, microfinance), yield optimization, fee income from cross-sell and payments business, though cost of funds may rise 4-5bps in FY27.
• Luxure 2031 targets 20%+ CAGR book growth; Q1 FY27 tracking at 27% YoY. Whenever market conditions are conducive, management will grow at faster pace than target but will never compromise risk for growth. Personal loan growth rates will moderate as base grows larger over next couple of quarters.

Risks flagged

• Escalating geopolitical tensions (Iran-West Asia conflict) created uncertainty requiring higher surplus liquidity (₹4,200 crores at peak) and contributed to NIM compression of 24bps. Rising debt equity ratio (3.73x to 3.97x) increased borrowing costs by 25bps. Cost of funds may rise 4-5bps in FY27.
• While monsoon has improved (deficit reduced to 14% below LPA by July 10), El Niño concerns remain. Rural business finance and tractor businesses are directly exposed to rainfall patterns. Management acknowledged localized risk in certain geographies but noted reservoir levels are acceptable and industry has deleveraged significantly.
• IRDAI regulatory changes on insurance commissions could impact fee income, as insurance commissions represent a healthy proportion of fees. Management acknowledged industry-wide concern and factored this into plans, with payments business as an alternative fee revenue source (2-2.5 year buildout).
• Remaining wholesale book of ~₹2,000 crores (now largely standard assets post-ARC settlement) requires 2-3 years for resolution. G3 contains one asset (Super Tech) with 61% PCR. Management expects over-realizations but has committed not to take these to P&L, creating macro provision buffer instead. This defers potential upside.

Key quotes

• While these numbers are robust, I would like to emphasize that we could have grown even faster. However, given the volatility in the economy, we chose prudence over aggressive expansion, maintaining our emphasis on responsible growth, disciplined underwriting, and superior portfolio quality. We proactively tightened our credit card guard rails during the quarter deliberately letting go of about 100 to 200 crores in potential disbursements forgoing a few percentage points of additional growth to firmly protect our asset quality.
• We firmly believe that this AI native operating model will also become one of the defining competitive advantages of L&T Finance under Luxure 2031. What differentiates our approach is that we have consciously invested in building proprietary technological capabilities. Rather than deploying isolated AI use cases, we have architected an integrated intelligence platform that spans the entire lending life cycle from customer acquisition to underwriting to portfolio management, servicing, collections and customer engagement.
• The ARC resolutions we already spoken about in the previous quarter. The PCR on the security receipts when we started off on this resolution process was 58% and that has now actually gone and increased to 68%. This shows there is a substantial buffer which has got created which is actually not required because we do this fair valuation on a regular basis but we have that money and that's why we are very confident that once the resolutions start happening ARC by ARC you will start seeing this credit coming into the P&L and our assurance has been that we will not take it to the P&L but we will utilize them to create macro provision.