Analysts bullish on L&T Finance amid strong Q3 growth, profitability gains

Emkay Global has upgraded the stock to 'Buy' from 'Reduce,' on the back of improved visibility on asset quality, profitability, and expansion opportunities.

L&T Finance Holdings is emerging as a strong play in retail lending, with brokerages turning increasingly bullish on its growth and profitability outlook. 

 

Emkay Global has upgraded the L&T Finance stock to ‘Buy’ from ‘Reduce,’ on the back of improved visibility on asset quality, profitability, and expansion opportunities. The brokerage raised its December 2026 target price to ₹350, implying a potential upside of around 16 per cent and a FY28 price-to-book value of 2.5x.

 

“Despite the stock’s solid outperformance over the past year, the combination of steady earnings growth, improving credit costs, and robust retail lending initiatives makes LTF well-positioned for the next leg of expansion,” Emkay said. It expects the company to deliver a 32 per cent EPS CAGR over FY26-28, with return on assets (RoA) and equity rising to 3 per cent and 16.4 per cent, respectively, from 2.4 per cent/11.6 per cent in FY26. Key drivers include stable NIM and fee income in the 10–10.5 per cent range, better cost-to-income and cost-to-assets ratios, and gradually moderating credit costs as technology-led underwriting initiatives bear fruit.

 

 

On the bourses, L&T Finance share price rose up to 3.03 per cent to an intraday high of ₹309.30 per share. Around 10:00 AM, L&T Finance share price was trading 1.03 per cent higher at ₹303.30. In comparison, BSE Sensex was trading 0.43 per cent lower at 82,892.04 levels.

L&T Finance's Quarterly performance in line with estimates

JM Financial highlighted that L&T Finance’s recent quarter was largely in line with expectations. Gross loan growth remained robust at +20 per cent Y-o-Y, supported by strong disbursements in microfinance and vehicle financing segments. Net interest income (NII) rose 18 per cent Y-o-Y, underpinned by a 22-bps sequential expansion in margins. Total NIM plus fees stood at 10.41 per cent, within management guidance.

 

However, a one-time expense related to the new labour code weighed on overall profits, causing a minor PAT miss of 2 per cent versus JM Financial estimates. Asset quality showed sequential improvement, with lower Stage 2 and Stage 3 loans, although credit costs increased to 2.9 per cent due to prudential provisioning on co-borrower exposures. Despite this, JM Financial maintained an ‘Add’ rating, valuing L&T Finance at ₹320, citing fair valuations after a 48 per cent rally over the past six months driven by improved microfinance sentiment.  ALSO READ | Nifty PSU Bank index hits new high, rallies 21% since October on FPI buying 

The brokerage expects continued retail-led growth supported by digital investments and strategic partnerships. Gold loan operations, with branch expansion to 330+ outlets by FY26-end, are likely to keep operating expenses elevated in the near term, even as credit costs normalise gradually.

Structural profitability gains expected

Motilal Oswal Research also stressed the structural improvements in profitability and credit metrics at L&T Finance. Adjusting for one-time labour code costs, the company’s Q3FY26 PAT rose 18 per cent Y-o-Y to ₹760 crore, while net interest income increased ~13 per cent Y-o-Y to ₹2,540 crore. The cost-to-income ratio held steady at ~39.4 per cent, reflecting controlled operating expenses despite branch expansion and technology investments.

 

Credit costs, excluding one-off prudential provisioning, fell to 2.74 per cent from 2.98 per cent in the previous quarter, signaling improving asset quality. The brokerage highlighted LTF’s strong focus on high-yield retail segments, including micro LAP, personal loans, SME, and gold loans, expected to sustain margin expansion. Microfinance growth is likely to remain moderate at 15-20 per cent, balancing risk and profitability.

 

Motilal Oswal projects a loan book CAGR of ~22 per cent and PAT CAGR of ~32 per cent over FY26-28, with RoA/RoE improving to 2.7 per cent/~15.4 per cent in FY28. The brokerage reiterated a ‘Buy’ rating, setting a target price of ₹370, based on 2.7x FY27 estimated book value per share.  ALSO READ | BHEL falls 4% as Q3 revenue misses estimates; analysts positive on outlook

L&T Finance Outlook: Growth with controlled risks

Across brokerages, the common theme is clear i.e. L&T Finance is entering a phase of structurally improved profitability, underpinned by better product mix, strong underwriting, and disciplined credit growth. Analysts see the company leveraging technology to contain credit costs and operating expenses, while selective expansion in retail lending segments, including two-wheelers, tractors, and microfinance, provides scope for sustainable growth.

 

“By solving the challenging retail credit puzzle, L&T Finance has positioned itself to scale profitably across segments,” Emkay said, highlighting the company’s resilience even during stress in the microfinance industry. While valuations appear fair relative to past multiples, the consensus suggests that sustained profitability gains, coupled with a solid growth pipeline, justify a re-rating.

 

Investors appear to be rewarding L&T Finance for its balanced approach – strong loan growth, improving asset quality, and disciplined expansion, elements that together signal a promising outlook for India’s retail finance market. 

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