Mirae Asset Sharekhan has reaffirmed its BUY recommendation on L&T Finance Holdings Ltd (LTFH), setting a revised price target of Rs 240. The research underscores LTFH’s strategic transformation into a retail-focused non-banking financial company (NBFC), highlighting robust loan growth guidance, improving asset quality, and operational efficiencies as key drivers for future performance. While near-term pressures persist in the microfinance (MFI) segment, management’s proactive steps—including enhanced underwriting, portfolio realignment, and macro-prudential provisioning—are expected to mitigate risks. The report anticipates a strong compound annual growth rate (CAGR) in both assets under management (AUM) and profit after tax (PAT) through FY27, with improving return ratios and manageable regulatory headwinds. Investors are advised to capitalize on the current valuation, as LTFH is positioned to benefit from sectoral tailwinds and internal transformation.

Sharekhan Maintains BUY Call: Strategic Transformation and Upbeat Outlook

Sharekhan reiterates its BUY rating on L&T Finance Holdings Ltd, with a revised price target of Rs 240, reflecting confidence in the company’s retail pivot and operational resilience. The stock is currently trading at Rs 190, offering a compelling upside for investors as LTFH navigates sectoral challenges and capitalizes on structural reforms.

Loan Growth Guidance: Ambitious Expansion Trajectory

LTFH has set an assertive near-term loan growth target of 20%, with management indicating a gradual ramp-up to 25%. This expansion is underpinned by a focus on urban retail segments—personal loans, consumer durables, home loans, and loan against property (LAP)—as well as select rural verticals like tractors, micro-LAP, and gold loans. The company’s calibrated approach is designed to reduce business model volatility and drive sustainable earnings growth.

Asset Quality and Credit Costs: Signs of Stabilization

Credit costs are expected to normalize by H2FY26, as stress in the MFI segment appears to be bottoming out. Notably, the implementation of MFIN Guardrails 2.0 is anticipated to have a limited impact, given LTFH’s low exposure to overleveraged customers. The company has proactively set aside a macro-prudential provision of Rs 575 crore, further fortifying its balance sheet against potential shocks.

Regulatory Headwinds: Manageable Risks in Key States

While new ordinances in Tamil Nadu and earlier regulatory changes in Karnataka initially impacted recoveries, LTFH’s experience suggests these effects are transient and manageable. The company’s Rs 6,000 crore exposure in Tamil Nadu is being closely monitored, but operational improvements and past recovery trends in Karnataka provide reassurance that systemic risks remain contained.

Operational Excellence: Structural Reforms and Technology Investments

LTFH is executing significant structural changes, deploying advanced credit underwriting engines and targeting prime customer segments. These initiatives are expected to improve portfolio quality and reduce future credit costs. The company is also investing in technology and process transformation, enhancing its ability to cross-sell, up-sell, and leverage deep analytics for business selection and market positioning.

Margin and Profitability Outlook: Navigating Yield Pressures

Net interest margins (NIMs) plus fees moderated slightly to 10.59% in FY25, primarily due to a shift in loan mix and lower yields in certain segments. However, LTFH plans to offset yield pressures by expanding high-margin products such as gold loans, micro-LAP, and personal loans, as well as implementing new fee-generation initiatives. Operating leverage is expected to improve as recent investments in technology and distribution begin to yield results, supporting profitability even as NIMs trend between 10-10.5% in FY26.

Financial Performance and Valuation: Robust Growth Metrics

LTFH is projected to deliver a 22% CAGR in AUM and 24% CAGR in PAT over FY25-27, with return on assets (RoA) and return on equity (RoE) expected to reach 2.6% and 14% respectively by FY27. The stock currently trades at 1.7x/1.5x its FY26E/FY27E adjusted book value, making it attractively valued relative to peers. The company’s robust capital position, AAA credit rating, and strong parentage further enhance its investment appeal.

Peer Comparison: Competitive Positioning

Key Risks: Monitoring Stress and Growth Calibration

Investors should be cognizant of higher-than-expected stress in the MFI portfolio, especially in Tamil Nadu, as well as the potential for slower growth and margin compression due to portfolio recalibration. However, LTFH’s proactive provisioning and strategic realignment are expected to mitigate these challenges.

Stock Levels and Investor Targets

Current Market Price (CMP): Rs 190
Target Price: Rs 240
Support Level: Rs 170
Resistance Level: Rs 200

Investors are advised to accumulate the stock on dips, with a medium-term target of Rs 240, as LTFH’s improving fundamentals and sectoral tailwinds offer a favorable risk-reward profile.

Bottomline: LTFH Poised for a Strong Recovery

L&T Finance Holdings Ltd stands at an inflection point, with a clear roadmap for growth, improving asset quality, and robust operational execution. Mirae Asset Sharekhan’s BUY call is underpinned by the company’s strategic transformation, prudent risk management, and attractive valuation. Investors seeking exposure to India’s evolving NBFC landscape should consider LTFH as a core portfolio holding, with expectations of significant value creation over the next 12-24 months.