L&T Finance shares fall on 'downgrade' call from UBS

L&T Finance shares fell over 3% intra day on Friday, June 13, following a downgrade from UBS. The brokerage firm adjusted its stance on the stock to "neutral" from "buy", while increasing its price target by 18.6% to ₹210 per share. This implies a potential upside of 16.3% from the previous closing price.

The stock fell to an intraday low of ₹180.61, a 3.8% drop on BSE. Later the stock closed 0.88% lower at Rs 186.20  on BSE. Market cap of the firm fell to Rs 46,501 crore. Over the past three months, L&T Finance shares have risen by 39%, a factor UBS believes already reflects a positive shift in the company's business performance, particularly within the Micro Finance (MFI) segment.

Despite the price target hike, UBS expressed concerns over L&T Finance's valuation, which has re-rated to 1.7 times its one-year forward price-to-book ratio, above its five-year average of 1.2 times. This re-evaluation leaves little room for potential disappointment in financial figures. Margins are expected to remain stable, and credit costs are projected at 2.4% to 2.5%, limiting improvements in Return on Assets (RoA) and Return on Equity (RoE). In response to this, L&T Finance is enhancing its digital initiatives, with significant outcomes anticipated by the latter half of FY26. UBS will monitor these efforts for possible future positivity on the stock.

UBS forecasts a 20% CAGR in the company's loan book from FY25 to FY27, with the MFI share decreasing slightly. Earnings per share are expected to grow at a 16% CAGR, and RoE is projected to rise by 13% over the same period. The recent downgrade highlights a balanced risk-reward scenario after the stock's significant recent uptrend, with the market already factoring in substantial improvements in the business.