Led by initiatives and driven by new MD, Sudipto Roy, LTFH is closing the gap with BAF in its technology interface. The management has displayed strong underwriting skills and collection processes, amply visible in how it managed rural finance portfolio. LTFH is now structurally well-placed to deliver both consistent growth and higher RoA, given its deep tech and increasing penetration. At our TP, the stock would trade at 2.5x FY28e P/BV for a ~2.7% RoA in FY28e. Retain high conviction BUY.

Improving credit growth and NIM to drive robust core earnings – A differentiated and tech-led top management team, is driving product penetration across urban and rural markets. The team’s focus on (a) leveraging technology for seamless operations; (b) expanding strategic partnerships with fintechs and OEMs; and (c) targeting prime customer segments has enabled robust growth and superior portfolio performance. Addition of gold loans and deepening of tech offers further impetus to loan growth. We raise our growth estimates to  20% AUM growth CAGR (from 17% earlier) over FY26-28e. We also expect NIM + fees in 10-11% range, as product-mix shifts to higher-yielding products.

Technology Leapfrog to Build an Edge over Peers – Under the leadership of Mr. Roy, the company has developed future-ready technology. Through AI/ML-driven initiatives i.e., Project Cyclops’  (for real-time credit underwriting) and ‘Project Nostradamus’  (for predictive risk management), the company is gradually improving its portfolio quality and TAT. Cyclops is in execution mode in each product, whilst Nostradamus is likely to be implemented in FY27. The Second Annual Tech Day held by LTFH, displayed a lot of rich data and future ready technology, providing visibility for higher growth at improved portfolio quality.

Asset Quality sees improving predictability – LTFH has navigated the previous challenging MFI cycle, with far more resilience than peers,  on account of its stronger underwriting. Headline asset quality has improved with Stage-2 falling by 80bps compared to 2.7% in Sep’23. With implementation of ‘Project Cyclops’, we are more confident of a favorable credit cost and build a lower credit cost of 2.4% and 2.2% for FY27e and FY28e, respectively.

Valuation – We raise our estimates by 1.5%/6%  and  pencil in a healthy 20% AUM CAGR over FY26-28e driving the PPoP growth. With robust growth, tech as a moat and improving credit underwriting, we reiterate a BUY with a TP of Rs375, at which the stock would trade at 2.5x Mar’28e P/BV(earlier 2.2x Sep’27e BV),  for ~2.7% RoA .

Key Risks – More-than-anticipated delinquencies in MFI book. General slowdown in economic activity could hamper growth.