On Tuesday, L&T Financial Holdings (LTFH:IN) stock received a reiterated Buy rating from Citi, with a steady price target of INR 221.00. The firm noted the management's focus on the stress in the microfinance institution (MFI) sector, pointing out the macro-operating deterioration.
Additionally, management's decision to rationalize the repossession policy in the tractor business and local adjustments in the 2-wheeler segment were mentioned as reasons for the elevated credit cost, which is currently at 2.6%.
Despite the credit cost exceeding the company's own guidance, L&T Financial Holdings is said to have managed the situation well compared to its peers. The third quarter is expected to present similar challenges to the second quarter, but the company is confident in its buffers and guardrails to manage the situation effectively.
The steady appearance of the gross stage 3 (GS3) and gross stage 2 (GS2) loan pools was noted, along with a reduction in coverage across days past due (dpd) buckets due to aggressive write-offs.
The expected loss coverage (ECL) provision decreased to 4.03% from 4.31%, as the retail GS3/GS2 pool increased to 5.33% from 5.2%. In response to these operating challenges, Citi has adjusted its earnings model for L&T Financial Holdings, cutting the forecast by 2% for the financial years 2025, 2026, and 2027.
Net interest margins (NIMs) plus fees contracted to 10.86% from 11.08%, which was anticipated, but this was somewhat balanced by an improved operating expense to assets leverage, which saw a quarter-over-quarter improvement of 28 basis points.
The retail assets under management (AUM) growth was primarily driven by the housing loan (HL), loan against property (LAP), small and medium-sized enterprises (SME), and corporate loan (CL) segments. Meanwhile, disbursements in the microfinance sector have slowed down. This comprehensive analysis by Citi reflects a careful consideration of L&T Financial Holdings' operational challenges and strategic responses.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.