L&T Finance partners with Amazon; takeaways from investor day meet, price targets & more

L&T Finance Ltd is likely to remain under the spotlight on Thursday as the NBFC announced a strategic multi-year partnership with Amazon Finance India, a lending service provider to offer loan products through Amazon’s app and website. The company informed about the same on after the trading hours on Wednesday.

On the other hand, the company hosted its digital investor day on November 25. Brokerage firms, attending the conference, continue to remain positive on the counter despite the concerns over microfinance (MFI) space, considering its lower allocation to the sector. Also, the lower cost of funds and strong expansion plans shall also be supportive for the stock prices, they said.

In its digital investor day, the management of L&T Finance’s (LTF) articulated its digital transformation journey and its way forward to drive stringent operations and stabilize credit quality led by Project Cyclops, an AI-driven, multi-dimensional underwriting engine, said the analysts tracking the stock.

It has made significant efforts to improve its credit underwriting practices across different product lines and has created an omni-channel digital architecture to support steady growth, said JM Financial. It believes the recent correction in the last 3 months led by issues across the MFI industry offers significant upside from here. The current valuations are relatively inexpensive, it said.

Motilal Oswal Financial Services said that LTF has moderated its MFI business growth and expects the industry to grow at 15-20 per cent, which is done by choice rather than any duress in its own MFI book. The company is expanding and achieved highest-ever tractor disbursements in October 2024 even though the company is focusing on digital disbursement, it said.

L&T Finance announced a strategic partnership with Amazon Finance India to develop innovative credit solutions aimed at enhancing affordability for Amazon's eligible customers and merchants, said the exchange filing. This partnership will enhance LTF’s product diversification strategy and improve credit availability for consumers in a fast and seamless manner, it said.

"We expect LTF’s MFI business to fare better than most of its MFI peers in the current credit cycle. We believe that the stock will be ripe for a rerating and recoup the correction that was seen after its last earnings release. We maintain 'buy' with a target price of Rs 180. The key risk is the MFI credit cycle continuing beyond FY25, resulting in high credit costs for longer than envisaged," it added.

"We remain circumspect on MFI exposure for LTF though it is relatively well placed given the company had been tightening its belt well in advance and it has exposure of only 5 per cent of its MFI book to customers with high leverage. LTF maintains macro-prudential provisions of Rs 970 crore on its MFI book which insulates from any future shocks," it said with a 'buy' rating and a target price of Rs 180.

Shares of L&T Finance Ltd rose nearly 2 per cent to Rs 143.60 on Thursday. The total market capitalization of the company stood close to Rs 36,000 crore. The stock has corrected nearly 28 per cent from its 52-week high at Rs 194.20 hit in July 2024. It tested its 52-week lows of Rs 134.10, just a couple weeks ago.

LTF continues to granularly track and execute its 5-pillar execution strategy towards reaching a consolidated RoA range of 2.8–3 per cent, thereby, creating a sustainable and predictable retail franchise, said ICICI Securities. The brokerage believe that LTF would not be spared from the affects of MFI turmoil but its small book in the space leaves it at a better place.

"However, MFI asset quality headwinds at sector level due to the current issue of over leveraging and tightening of MFI guard rails and natural calamities in specific geographies, pose a risk to our credit cost estimate for LTF or could be offset by utilisation of macro prudential provisions," the brokerage added with a with a 'buy' rating and a target price of Rs 200 (from Rs 225 earlier).