Earnings Outlook
Jump in credit cost to shrink L&T Finance's Oct-Dec PAT YoY
This story was originally published at 14:57 IST on 17 January 2025
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NEW DELHI – L&T Finance Ltd.'s profitability is set to take a hit in the penultimate quarter of 2024-25 (Apr-Mar) due to a rise in credit costs, with the non-bank lender's bottomline seen falling 2.8% from a year ago. According to the median of estimates of seven brokerages, L&T Finance is seen reporting a consolidated net profit of INR 6.22 billion for Oct-Dec. This would be 10.6% lower from the Jul-Sept figure.
In Jul-Sept, the lender's credit cost had surged to 2.59% from 2.37% in the first quarter of FY25, with Sudipta Roy, managing director and chief executive officer, then warning that the period had been "one of the most challenging operating quarters post-Covid" for the banking and financial services sector and Oct-Dec was expected to be "as intense...with a normalisation runaway visible only in Q4FY25 (Jan-Mar)".
L&T Finance, which will publish its quarterly results on Monday, is likely to have seen a further sequential jump in credit costs in Oct-Dec. While analysts at Motilal Oswal Financial Services see the figure rising to around 3.4% on an annualised basis, broking firm Sharekhan sees it rising 90-100 basis points from Jul-Sept.
Several brokerages highlighted the microfinance portfolio as a key monitorable as it makes up around a quarter of the company's overall book. The company's rural business finance vertical, which includes microfinance loans and rural group loans, suffered in Jul-Sept due to flooding in north Bihar, Gujarat, and parts of West Bengal, with the "disturbances from certain unscrupulous elements" hurting collection efforts in north-eastern Uttar Pradesh and "headwinds in Odisha on account of temporary disruption in social welfare schemes", the company told analysts and investors in October.
"...we are also seized of the fact that the industry is passing through a period of de-leveraging which might have a ripple effect continuing into Q3FY25 (Oct-Dec) and Q4FY25 (Jan-Mar), thereby moderating our growth outlook," Roy had said then.
Disbursals under the rural business finance vertical were down 5.3% year-on-year in Jul-Sept. According to an update on its business filed with the exchanges on Jan. 3, retail disbursements under the rural business finance vertical were down 16.2% on year in Oct-Dec at INR 45.90 billion, with overall retail disbursals up 4.4% in the quarter. The retail book as on Dec. 31 stood at INR 922.00 billion, up 23.3% on year.
The "abysmal growth" and margin compression, Elara Securities (India) Pvt Ltd said in a pre-earnings report, is also set to drag down L&T Finance's net profit in Oct-Dec. According to Kotak Institutional Equities, L&T Finance's overall loan growth will be 4.1% "due to rundown in the wholesale segment", with the net interest margin seen moderating to 8.9% on higher funding costs.
As per the median of analysts' estimates, L&T Finance's net interest income in Oct-Dec is seen at INR 21.28 billion. This would be 9.0% higher from last year, but 2.3% lower from Jul-Sept.
In Jul-Sept, the non-banking finance company's net interest margin was 8.94%, sharply down from 9.31% in Apr-Jun even as its weighted average cost of borrowing declined 5 basis points sequentially to 7.80%. Brokerages see the net interest margin shrinking 15-25 bps in Oct-Dec from the previous quarter.
At 1448 IST on Friday, shares of L&T Finance were up 1% at INR 143.78 on the National Stock Exchange.
Following are the Oct-Dec earnings estimates for L&T Finance based on reports from seven brokerage firms in descending order by the estimate of net profit:
| Brokerage | Net interest income (in INR million) |
Net profit (in INR million) |
| JM Financial Institutional Securities Pvt Ltd | 20,687.00 | 7,391.00 |
| Anand Rathi Share and Stock Brokers Ltd | 23,207.00 | 6,555.00 |
| Sharekhan Ltd | 22,140.00 | 6,020.00 |
| Elara Securities (India) Pvt Ltd | 21,264.00 | 5,960.00 |
| Motilal Oswal Financial Services Ltd | 21,113.00 | 5,909.00 |
| Kotak Institutional Equities | 19,872.00 | 5,906.00 |
| Nuvama Wealth Management Ltd | 20,700.00 | 5,800.00 |
| AVERAGE | 21,283.29 | 6,220.14 |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Siddharth Upasani
Edited by Ashish Shirke
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