LTF Q2 FY26 earnings call.
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L&T Finance delivered a steady Q2 FY26 with consolidated PAT of ₹735 crores (up 6% YoY, 5% QoQ), driven by robust retail disbursement growth of 25% YoY to ₹18,883 crores. The retail book crossed ₹1.05 lakh crores, growing 18% YoY. Key highlights include green shoots in microfinance with collection efficiency recovering to 99.5%, Karnataka collections improving to 99.18%, and declining credit costs (down from 3.8% in Q4 FY25 to 2.98%). The newly acquired gold loan business exceeded expectations with quarterly disbursements of ₹983 crores. Cyclops AI underwriting engine now processes 1,400 transactions/second across two-wheeler, farm, and SME segments, with net non-starters in two-wheeler reducing to 0.47% from 2.36%. Management targets a 2% credit cost trajectory over the medium term and 2.8-3.0% ROA by FY27 exit. Risks include competitive pressures in housing, rapid personal loan growth requiring monitoring, and macro provision buffer depletion to ₹125 crores post ₹150 cr utilization.
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Guidance to track
- Management aims to trend toward 2% credit cost, with FY27 expected to show significant improvement as Cyclops implementation completes across all business lines including personal loans (Q3 FY26), home loans, LAP, and MFI (FY27).
- Management reaffirmed 2.8-3.0% ROA target by FY27 exit, stated on organic basis without factoring in any stress-related asset recovery (SR) benefits.
- Despite near-term pressure from mix shift (higher gold loans, competitive housing), management sees support from rate cuts, PSL advantage, and ability to grow commercial paper book from 7% to 13-15%.
- Operating expenses plus credit cost expected to decline from 7% toward 6% as investments normalize and portfolio quality improves, with collections costs also declining multiplier-effect. Full realization expected during FY27.
Risks flagged
- Post repo rate cuts, housing loan rates have faced downward pressure with increased competition. Management is being judicious and focusing on LAP over pure home loans, leading to moderated housing disbursement growth (-2% QoQ).
- Personal loan disbursements grew 114% YoY and 50% QoQ to ₹2,918 Cr. While management emphasizes risk-calibrated growth and strong credit guardrails, the speed of scaling through digital partnerships warrants close tracking of early delinquency indicators.
- Newly acquired gold loan business is scaling rapidly (₹983 Cr quarterly disbursements) with 330+ branches targeted by FY26 end. Integration into multi-product Sampoorna branches and maintaining credit quality while expanding geographically presents execution challenges.
- Board approved utilization of ₹150 Cr of macro provisions during Q2, leaving residual balance of only ₹125 Cr. Rebuilding will depend on ARC portfolio resolutions over 18-24 months, potentially limiting buffer against future shocks.
Key quotes
- We want to build a cycle resilient business... even when the cycle turns the risk cost of your portfolio does not go beyond a particular pain threshold and for that you can deliver that only when you have roughly 80 to 85% portfolio that is a back of the envelope sort of calculation that we have in what I call cycle resilient customers.
- Our objective is to maintain NIM+P in the corridor of 10 to 10.5%. And we are reasonably confident that we should be able to do that.
- What we are chasing is risk calibrated growth... Please understand here we are not chasing any particular growth number. If the risk calibrated growth makes us hit a particular number that is the number that we'll report to the market.
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