UBS downgrades L&T Finance to 'Neutral' but raises target price to ₹210 from ₹177 earlier

UBS has revised its stance on L&T Finance Holdings, downgrading the stock to a 'neutral' rating from its previous 'buy' call, even as it raised the target price from ₹177 to ₹210 per share. The new target implies a potential upside of 13 percent from the stock’s closing price on Friday. The brokerage believes that after a strong run-up, the risk-reward for the NBFC stock now appears evenly balanced.

Stock Rally May Have Priced in Business Improvements

UBS noted that shares of L&T Finance have surged 39 percent over the past three months, significantly outperforming broader benchmarks. The brokerage believes that the rally already reflects a substantial improvement in the company’s core business, especially in the microfinance (MFI) segment. It added that while operational performance remains solid, valuations have become stretched.

The stock is currently trading at 1.7 times its one-year forward price-to-book value—well above its five-year average of 1.2 times. UBS flagged this as a concern, indicating that such a premium leaves little margin for error or underperformance, especially in earnings delivery.

Moderate Growth Outlook Amid Digital Push

UBS forecasts L&T Finance's loan book to grow at a 20 percent CAGR between FY25 and FY27. However, it also projects that the share of the MFI segment will gradually reduce to 24 percent from 27 percent currently. Margins are expected to remain largely rangebound, while credit costs are likely to hover around 2.4 to 2.5 percent. This would limit the upside in core profitability metrics like Return on Assets (RoA) and Return on Equity (RoE), UBS said.

The brokerage acknowledged that L&T Finance is actively investing in digital transformation, but added that the financial benefits of these initiatives may only start reflecting meaningfully from the second half of FY26. UBS said it would prefer to monitor the credit performance of new initiatives before turning constructive again.

Looking ahead, UBS projects L&T Finance’s earnings per share (EPS) to grow at a CAGR of 16 percent over FY25-FY27, with RoE expected to improve by 13 percent during the same period.

Q4 Performance and Dividend Announcement

L&T Finance recently posted a 14.9 percent year-on-year increase in net profit for Q4FY25, with earnings reaching ₹636.2 crore, compared to ₹553.9 crore in the corresponding quarter last year. Net interest income (NII) also rose by 3.8 percent to ₹2,423.2 crore, reflecting robust growth in the lending portfolio.

On the asset quality front, the gross NPA ratio ticked up slightly to 3.29 percent from 3.23 percent in the previous quarter and 3.15 percent a year ago. Net NPAs, however, remained relatively stable at 0.97 percent, compared to 0.79 percent YoY. The company’s board has recommended a final dividend of ₹2.75 per equity share for FY25, subject to shareholder approval.

Stock Performance

Over the last one year, L&T Finance’s stock has remained largely flat, rising just 2 percent. However, it has shown strong momentum in recent months. In June so far, the stock has gained 10 percent, following a 4 percent rise in May, a 7 percent jump in April, and a 14 percent surge in March. Prior to this, it had slipped over 7 percent in February but had posted a 7 percent gain in January.

The stock recently hit a 52-week high of ₹197.10 in June 2025, while its 52-week low of ₹129.15 was recorded in January 2025.

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