L&T Finance Ltd:Annual Report 2023-24 Analysis

L&T Finance Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

L&T Finance was established in 1994 as a captive finance company of Larsen & Toubro (L&T). It was originally named L&T Finance Limited.

Headquarters Location and Global Presence #

The headquarters of L&T Finance Ltd. is located in Mumbai, India. While primarily focused on the Indian market, it leverages the global presence and reputation of its parent company, Larsen & Toubro.

Company Vision and Mission #

• Vision: To be a leading retail financial services player, enabling inclusive growth for India’s underserved.
• Mission: To create sustainable value for stakeholders through a customer-centric approach, operational excellence, and responsible lending practices.

Key Milestones in Their Growth Journey #

• 1994: Established as L&T Finance Limited.
• 2008: Initial Public Offering (IPO).
• 2012: Restructured into a Non-Banking Financial Company (NBFC).
• 2015-Present: Focus on retailisation and building a strong rural finance presence.

Stock Exchange Listing Details and Market Capitalization #

L&T Finance Ltd. (LTF) is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Market capitalization fluctuates depending on market conditions. Consult financial websites for the most up-to-date information.

Recent Financial Performance Highlights #

Recent financial performance highlights can be found in the company’s annual reports, quarterly results announcements, and investor presentations available on their official website and financial news websites. Look for key metrics like:

• Net Profit
• Revenue
• Assets Under Management (AUM)
• Non-Performing Assets (NPA) ratio

Management Team and Leadership Structure #

L&T Finance is headed by a team of experienced professionals. Check their website for the most up-to-date information on the CEO, CFO, and other key management personnel.

Notable Awards or Recognitions #

L&T Finance may have received awards and recognitions in areas such as:

• Corporate Governance
• Financial Performance
• CSR Initiatives
• Employer Branding

Check their website or press releases for details.

Their Products #

Complete Product Portfolio with Categories #

L&T Finance offers a diversified range of financial products and services, primarily focused on:

• Rural Finance: Farm Equipment Finance, Two-Wheeler Finance, Microfinance, Agri-Business Finance.
• Housing Finance: Home Loans, Loan Against Property.
• Infrastructure Finance: Financing for infrastructure projects (roads, power, etc.).
• SME Finance: Loans for small and medium-sized enterprises.

Flagship or Signature Product Lines #

Their Farm Equipment Finance and Housing Finance are considered significant contributors to their revenue.

Quality Certifications and Standards #

L&T Finance, being part of the L&T Group, adheres to high standards of quality and corporate governance. While specific product certifications may vary, they generally comply with all applicable regulatory requirements.

Recent Product Launches or R&D Initiatives #

L&T Finance regularly introduces new products and services to cater to evolving customer needs. Recent launches and R&D initiatives may focus on:

• Digital Lending Platforms
• Customized Loan Products for specific segments (e.g., farmers, SMEs)
• Fintech partnerships for enhanced customer experience

Primary Customers #

Target Industries and Sectors #

• Agriculture
• Infrastructure
• Housing
• Small and Medium Enterprises (SMEs)

Geographic Markets (Domestic vs. International) #

L&T Finance primarily operates in the domestic Indian market.

Major Client Segments (agricultural, industrial, residential, etc.) #

• Farmers
• Rural Households
• SMEs
• Home Buyers
• Infrastructure Developers

Distribution Network and Sales Channels #

L&T Finance utilizes a combination of:

• Branch Network
• Direct Sales Agents (DSAs)
• Digital Platforms
• Partnerships with dealers and OEMs (Original Equipment Manufacturers)

Major Competitors #

Direct Competitors in India and Globally #

Direct Competitors in India:

• Mahindra & Mahindra Financial Services
• Shriram Transport Finance Company
• HDFC Ltd.
• LIC Housing Finance
• Other NBFCs and Banks

Competitive Advantages and Disadvantages #

• Advantages:
  • Strong brand reputation (L&T Group)
  • Extensive rural presence
  • Diversified product portfolio
  • Focus on technology and digitalization
• Disadvantages:
  • Vulnerability to economic cycles and agricultural conditions
  • Competition from established banks and NBFCs

How They Differentiate from Competitors #

L&T Finance differentiates itself through:

• Strong focus on rural finance and financial inclusion.
• Leveraging technology to improve customer experience and efficiency.
• Emphasis on risk management and asset quality.

Future Outlook #

Expansion Plans or Growth Strategy #

L&T Finance’s future growth strategy likely includes:

• Expanding its rural reach and market share.
• Increasing its focus on digital lending and fintech partnerships.
• Diversifying its product portfolio to cater to emerging customer needs.
• Strengthening its risk management capabilities.

Sustainability Initiatives or ESG Commitments #

L&T Finance is increasingly focusing on ESG (Environmental, Social, and Governance) factors, including:

• Promoting financial inclusion for underserved communities.
• Supporting sustainable agricultural practices.
• Reducing its environmental footprint.

Industry Trends Affecting Their Business #

Key industry trends affecting L&T Finance include:

• Increasing adoption of digital lending and fintech solutions.
• Growing demand for financial services in rural areas.
• Regulatory changes and increasing competition.
• Economic cycles and agricultural conditions.

Long-Term Vision and Strategic Goals #

L&T Finance aims to be a leading retail financial services player, driving inclusive growth and creating value for its stakeholders. Their strategic goals are likely focused on:

• Achieving sustainable and profitable growth.
• Enhancing customer experience and satisfaction.
• Maintaining strong asset quality and risk management.
• Contributing to financial inclusion and sustainable development.

L&T Finance Limited - Financial Analysis (FY 2023-24) #

Key Financial Metrics (FY22-FY24 Trend Analysis) #

Loan Book #

• Retail Loan Book: Reached ₹80,036 Cr in FY24, a growth of 31% YoY.
• Wholesale Loan Book: Reduced to ₹5,528 Cr in FY24, a 72% YoY reduction.
• Overall Loan Book: Approximately ₹85,564 Cr in FY24.

Retailisation #

• Achieved 94% in FY24, up from 58% at the start of the Lakshya 2026 plan (FY22).

Profitability #

• Profit After Tax (PAT) (Consolidated): ₹2,320 Cr in FY24, a growth of 43% YoY.
• Net Profit Margin (Consolidated): Increased to 16.49% in FY24 from 11.55% in FY23.
• Return on Assets (RoA) (Consolidated): Achieved 2.32% in FY24.
• Return on Equity (RoE) (Consolidated): Reached 10.35% in FY24.

Asset Quality (Consolidated) #

• Gross Stage 3 (GS3): Improved to 3.15% in FY24 from 4.74% in FY23.
• Net Stage 3 (NS3): Improved to 0.79% in FY24 from 1.51% in FY23.
• Provision Coverage Ratio (PCR) (Consolidated): Stood at 76% in FY24.

Capital Adequacy #

• CRAR (Consolidated): 22.84% as of March 31, 2024.

Disbursements (Retail) #

• Highest ever annual retail disbursements of ₹54,267 Cr in FY24, up 29% YoY.

Weighted Average Cost (WAC) of Borrowings #

• Increased by 34 bps YoY to 7.80% in FY24.

Business Segment Performance (FY24) #

Retail Finance (Overall) #

• Constitutes 94% of the total loan book.
• Retail book grew by 31% YoY to ₹80,036 Cr.
• Annual disbursements of ₹54,267 Cr (+29% YoY).

Farmer Finance #

• Farm Equipment Finance: Loan book reached ₹13,892 Cr (+8% YoY) with disbursements of ₹6,848 Cr.
• Agri-Allied Finance: Warehouse Receipt Finance launched in Q3FY24 post-successful pilot.

Rural Business Finance #

• Rural Group Loans & Micro Finance (JLG): Loan book crossed ₹24,000 Cr (specifically ₹24,716 Cr, +32% YoY).
• Micro LAP: Scaling up post-successful pilot.

Urban Finance #

• Overall book size ₹36,089 Cr (+30% YoY).
  • Two-Wheeler Finance: Loan book ₹11,205 Cr (+25% YoY) with disbursements of ₹8,586 Cr (+21% YoY).
  • Home Loans & Loan Against Property (LAP): Loan book ₹18,443 Cr (+38% YoY) with disbursements of ₹7,500 Cr (+59% YoY).
  • Personal Loans: Book growth of 18% YoY to ₹6,440 Cr.
  • SME Finance: Loan book reached ₹3,905 Cr with disbursements of ₹3,657 Cr.

Wholesale Finance #

• Book reduced to ₹5,528 Cr.

Major Strategic Initiatives and Progress #

Lakshya 2026 #

• Retail Level Achievement: Original Lakshya 2026 goals were achieved at the retail level in Q3FY24, two years ahead of schedule.
  • Retailisation: 94% (Target: >80%)
  • Retail Book Growth: 31% YoY (Target: >25% CAGR)
  • Consolidated GS3: 3.15%; NS3: 0.79% (Targets: GS3 <3%, NS3 <1%)
• Revised Lakshya 2026 (Consolidated Level Convergence by FY26):
  • Retailisation: >95%
  • Retail Book Growth: >25% CAGR
  • Consolidated Asset Quality: GS3 <3%, NS3 <1%
  • Consolidated RoA: 2.8%-3.0%

Merger into a ‘Single Lending Entity’ #

• Successfully completed the merger effective December 4, 2023.
• The holding company was subsequently renamed L&T Finance Limited effective March 28, 2024.
• Benefits: Simplified corporate structure, enhanced governance, improved liability management, seamless compliance with RBI Scale-based Regulations, operational efficiencies.

Digital Transformation (Fintech@Scale) #

• Designing Superior Customer Experience: Revamp of D2C app (PLANET) and customer portal.
• Digital Process Engineering: Business process re-engineering via automation & AI.

Detailed Analysis #

Financial Analysis Report: L&T Finance Limited (FY2024) #

Balance Sheet Analysis #

Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

A direct three-year comparative analysis from the primary audited consolidated financial statements is limited as these provide figures for FY24 and FY23 (restated post-merger). The following table presents a two-year comparison:

L&T Finance Limited FY24 Financial Analysis #

Revenue and Loan Book Analysis #

• Overall Income:
  • Consolidated total income for FY24: ₹14,055.12 Cr (5.66% growth from FY23).
  • Standalone total income for FY24: ₹14,043.80 Cr (4.61% increase from FY23).
• Retail Disbursements and Loan Book:
  • Highest ever annual retail disbursements: ₹54,267 Cr (29% Y-o-Y growth).
  • Retail loan book: Crossed ₹80,000 Cr (31% Y-o-Y growth).
  • Retailisation: Reached 94% of the total loan book.
• Segment-wise Retail Performance (FY24 Y-o-Y Growth & Book Size/Disbursements):
  • Rural Business Finance: Highest ever annual disbursements at ₹21,495 Cr (+27% Y-o-Y); loan book crossed ₹24,000 Cr. Q4FY24 disbursements were ₹5,768 Cr (+31% Y-o-Y).
  • Farmer Finance: Annual disbursements grew 8% Y-o-Y leading to a book size of ₹13,892 Cr. Q4FY24 disbursements stood at ₹1,530 Cr. Farm Equipment Finance disbursements reached ₹6,848 Cr.
  • Urban Finance (Two-Wheelers, Personal Loans, Home Loans & LAP): Overall book size stood at ₹36,089 Cr (+30% Y-o-Y). Q4FY24 disbursements grew 32% Y-o-Y.
    • Two-Wheeler Finance: Disbursements of ₹8,586 Cr (+21% Y-o-Y); loan book at ₹11,205 Cr (+25% Y-o-Y). Financed ~9 lakh units.
    • Home Loans & LAP: Disbursements grew by ~59% Y-o-Y to ₹7,500 Cr; loan book at ₹18,443 Cr (+38% Y-o-Y).
    • Personal Loans: Book growth of 18% Y-o-Y to ₹6,440 Cr. Disbursements saw a conservative approach, de-growing 12% Y-o-Y.
  • SME Finance: Annual disbursements of ₹3,657 Cr; loan book stood at ₹3,905 Cr. March 2024 saw highest ever monthly disbursement of ₹458 Cr.
• Wholesale Finance:
  • Book decreased by 72% Y-o-Y from ₹19,512 Cr to ₹5,528 Cr in FY24. (6% of total book).
• Geographic Focus:
  • 51.60% of the rural loan book (Rural Business Finance + Farmer Finance) originated from low-income states as of March 31, 2024.
  • Operations span 1,965 branches across 20 states and 2 union territories.

Cost Structure Analysis #

• Total Expenses (Consolidated): Decreased to ₹11,025.99 Cr in FY24 from ₹11,171.05 Cr in FY23.
• Total Expenses (Standalone): Increased marginally to ₹11,057.16 Cr in FY24 from ₹11,014.68 Cr in FY23.
• Key Expense Components (Standalone FY24 vs FY23):
  • Finance Costs: ₹5,905.46 Cr (FY24) vs ₹5,999.44 Cr (FY23). Weighted Average Cost (WAC) of borrowing increased by 34 bps to 7.80% in FY24 from 7.46% in FY23.
  • Impairment on Financial Instruments: ₹1,803.12 Cr (FY24) vs ₹1,958.25 Cr (FY23).
  • Employee Benefits Expenses: ₹1,500.10 Cr (FY24) vs ₹1,263.17 Cr (FY23), an increase of 18.76%.
  • Depreciation, Amortisation and Impairment: ₹163.60 Cr (FY24) vs ₹141.00 Cr (FY23).
  • Other Expenses: ₹1,154.11 Cr (FY24) vs ₹1,107.99 Cr (FY23).

Margin Analysis #

• Net Interest Income + Fees (NIIM + Fees - Consolidated): Reached ₹8,724 Cr in FY24.
• Profit Before Tax (PBT - Consolidated, before exceptional items): Grew significantly to ₹3,029.03 Cr in FY24 from ₹2,130.65 Cr in FY23 (42.16% increase).
• Profit After Tax (PAT - Consolidated): Achieved highest ever annual PAT of ₹2,320 Cr in FY24 (43% Y-o-Y growth from ₹1,623.25 Cr in FY23).
• Net Profit Margin (Consolidated): Increased from 11.55% in FY23 to 16.49% in FY24.

Cash Management #

Cash Flow and Liquidity Analysis #

Financial Analysis of L&T Finance Limited (LTF) - FY2024 #

Key Performance Indicators #

Based on excerpts from the Integrated Annual Report.

Profitability Ratios #

Return on Equity (ROE) #

• FY2024 (Consolidated): 10.35%
• FY2023 (Consolidated): 8.01%
• Trend: Significant improvement from FY23 to FY24.

Return on Assets (ROA) #

• FY2024 (Consolidated): 2.32%
• FY2023 (Consolidated): 1.58%
• Trend: Improvement from FY23 to FY24.
• Q4 FY24 (Consolidated): 2.19%
• Lakshya 2026 Target (Consolidated): 2.8%-3%

Net Profit Margin (Consolidated) #

• FY2024: 16.49%
• FY2023: 11.55%
• Trend: Substantial increase.
• Reason: Strong book growth across all retail products.

Liquidity Ratios #

Liquidity Coverage Ratio (LCR) #

• Q1 FY24: 146%
• Q2 FY24: 170%
• Q3 FY24: 145%
• Q4 FY24: 157%

Leverage Ratios #

Debt-to-Equity Ratio #

• FY2024 (Consolidated - Year-end): 3.35
• FY2023 (Consolidated - Year-end): 3.97
• Trend: Decrease, indicating reduced leverage.
• FY24 Average: 3.27x

Capital to Risk (Weighted) Assets Ratio (CRAR) - Consolidated #

• FY2024: 22.84%

L&T Finance Limited (FY24) Financial Analysis #

Revenue and Profitability Metrics #

• Total Income (Consolidated): ₹14,055.12 Cr in FY24, a 5.66% increase from ₹13,301.70 Cr in FY23.
• Net Profit After Tax (PAT, Consolidated): Highest-ever annual PAT of ₹2,320 Cr in FY24, a 43% YoY growth from ₹1,623.25 Cr in FY23.
• Net Interest Margin (NIIM) + Fees (Consolidated): ₹8,724 Cr in FY24.
• Return on Assets (RoA, Consolidated): 2.32% for FY24. The retail business RoA was 3.57% (Q4 FY24). Revised consolidated RoA target for Lakshya 2026 is 2.8%-3%.
• Return on Equity (RoE, Consolidated): 10.35% in FY24.
• Earnings Per Share (EPS, Consolidated Basic): ₹9.33 for FY24 compared to ₹6.55 for FY23.

Market Share and Competitive Position #

• Leading Non-Banking Financial Company (NBFC) in India, particularly in the retail finance sector.
• Holds the highest credit rating of ‘AAA’ from four leading rating agencies (CRISIL, ICRA, India Ratings, CARE).
• Retail book constitutes 94% of the total loan book as of March 31, 2024.

Risk Analysis Report: L&T Finance Limited (FY2024) #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable to Improving (mitigation efforts showing results)

Analysis: #

• Macroeconomic Headwinds: The global economy faced slowdowns, high interest rates, and geopolitical conflicts. India, while resilient (FY24 GDP growth est. 7.6%, FY25 projected 7.0% by RBI), faces risks from geopolitical tensions, climate events, delayed private capital spending, and prolonged high interest rates. A potential adverse impact on rural income (key for LTF’s rural portfolio) due to skewed monsoons, despite an “above normal” prediction for 2024, remains a concern.
• Retailisation and Portfolio Mix: LTF has aggressively pursued its “Lakshya 2026” goal of retailisation, achieving 94% by FY24 (vs. target >80%). The wholesale book was reduced by 72% YoY to ₹5,528 Cr. The strategy’s success depends on sustained growth and asset quality in the expanded retail (Rural & Urban) book (now >₹80,000 Cr).
• Competitive Landscape (Fintech@Scale): LTF aims to be a “Fintech@Scale.” The risk involves execution of digital transformation, fending off agile fintech competitors, and adapting to evolving customer expectations for digital services. Investment in technology, AI, and Gen AI is critical.
• Merger Integration: Successful completion of the merger into a “Single Lending Entity” (effective Dec 4, 2023) simplifies structure but carries integration and operational synergy realization risks.

Mitigation Strategies & Control Effectiveness: #

• Lakshya 2026 Strategy: Early achievement of retail-level targets (Retailisation 94%, Retail Book Growth 31% YoY, Retail RoA 3.17% for Q4FY24) indicates strong strategic execution. New consolidated targets set (Retailisation >95%, Retail Book CAGR >25%, Consolidated GS3 <3%, NS3 <1%, RoA 2.8-3.0% by FY26).
• 5-Pillar Execution Strategy: Focus on customer acquisition, credit underwriting, digital architecture, brand visibility, and capability building. Quantifiable progress reported in Q4FY24 on new customer acquisition (12.29 lakh) and channel expansion.
• Diversified Portfolio: Balanced rural and urban focus (each ~₹40,000 Cr) provides resilience.
• Digital Transformation: Significant investments in PLANET app (91 lakh+ downloads, 4.3-4.4 star ratings), 100% digital disbursements in key products, and process re-engineering.

Potential Financial Impact: #

Failure to achieve revised Lakshya targets could impact RoA (target 2.8-3.0%), PAT growth (FY24 PAT ₹2,320 Cr, +43% YoY), and market capitalization (₹39,362.59 Cr as of Mar 31, 2024). Macroeconomic shocks could increase credit costs and reduce loan demand.

Quantitative Risk Metrics & YoY Change: #

• Retailisation: 94% (FY24) from 88% (FY23).
• Retail Loan Book Growth: 31% YoY (FY24).
• Wholesale Book: ₹5,528 Cr (FY24) vs ₹19,512 Cr (FY23), a 72% reduction.

Operational Risks #

• Severity: Medium to High (Cybersecurity is High)
• Likelihood: Medium
• Trend: Increasing (due to digitalisation and evolving threat landscape)

Analysis: #

• Cybersecurity & Data Privacy: Increased digitalisation and customer-facing applications heighten cyber-attack risks (ransomware, DoS, data breaches). Digital frauds targeting customers are noted as increasing. Reliance on AI/ML and cloud introduces new security vectors.
• Technology Infrastructure & Business Continuity: Dependence on complex IT architecture for processing high transaction volumes. Failures could disrupt operations.
• Process Efficiency & Human Error: Risks arising from system failures, human error, or internal fraud. Addressed through SOP reviews and automation (Project Overhaul 1.0 & 2.0).
• Model Risk: Reliance on sophisticated algorithms (statistical, ML) for critical decisions (underwriting, valuation, collections, regulatory reporting). Flawed models can lead to incorrect decisions and financial loss.
• Third-Party/Vendor Risk: Outsourcing IT operations or partnering with FinTechs introduces risks if vendor controls are inadequate.

Mitigation Strategies & Control Effectiveness: #

• Cybersecurity: ISO 27001 certified ISMS, 3-tier security architecture, DR plan, real-time threat simulations, vulnerability assessments (internal & third-party), security patching, access controls, 24x7 monitoring, cyber insurance. 100% Board training on Information Security.
• IT Infrastructure: Isolated recovery environment for critical applications, in-house collection app (BRAKE), ongoing IT infra upgrades.
• Operational Risk Management (ORM) Framework: OR team, RCSA testing automation project, KRI monitoring, Project Overhaul 1.0 completed (SOP, process flow, RCM review), Project Overhaul 2.0 ongoing (critical process strengthening). Mandatory ORM training for employees.
• Model Risk Management: Board-approved Model Risk Management Policy (FY24), model development guide, risk-dependent review & monitoring framework, compensating controls for identified weaknesses.
• Data Privacy: Data Privacy Policy, ISO 27701 framework adoption targeted, data classification, DLP, CASB, PII monitoring. No customer privacy breach complaints in FY24.

Potential Financial Impact: #

Cyber incidents could lead to direct financial losses, reputational damage, regulatory penalties, and business disruption. Model failures can result in increased credit losses or incorrect valuations. Operational disruptions can affect customer service and revenue generation.

Quantitative Risk Metrics & YoY Change: #

• Digital Disbursements (Rural + Urban): 100%.
• PLANET App Customer Servicing Interactions: 216 lakh+.
• Business process reengineering saved >2 lakh hours of human effort (new metric).

Financial Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable (Proactive management despite challenging environment)

Analysis: #

• Credit Risk: This is the most significant risk. It involves potential losses if borrowers fail to meet contractual obligations. Risk stems from economic downturns, sector-specific issues, or borrower-specific financial distress. Retail portfolio (rural, urban, SME) is the primary focus.
• Liquidity Risk: Inability to meet financial obligations as they fall due. Managed by maintaining adequate HQLA, diversified funding sources, and positive liquidity gaps. Regulatory LCR requirements apply.
• Market Risk (Interest Rate Risk): Adverse movements in interest rates affecting Net Interest Income (NII) and the value of fixed-income securities.

L&T Finance Limited (LTF) - Financial Analysis Report (May 30, 2024) #

Strategic Overview and Corporate Restructuring #

Merger and Single Lending Entity #

• Effective December 4, 2023, LTF completed the merger of its subsidiaries (L&T Finance Limited, L&T Infra Credit Limited, and L&T Mutual Fund Trustee Limited).
• Consolidation creates a simplified “Single Lending Entity,” enhancing governance, operational efficiency, liability management, and compliance.
• The company was renamed L&T Finance Limited effective March 28, 2024.

Lakshya 2026 Achievement & Revision #

• LTF achieved its “Lakshya 2026” goals at the retail level in Q3FY24, two years ahead of schedule.
  • Retailisation reached 94% (target: >80%).
  • Retail book grew 31% YoY (target: 25% CAGR).
  • Q4FY24 Consolidated Asset Quality: Gross Stage 3 (GS3) at 3.15% and Net Stage 3 (NS3) at 0.79% (targets: GS3 <3%, NS3 <1%).
• The company has now reoriented its Lakshya 2026 goals to be achieved at the consolidated level: Retailisation >95%, Retail Book Growth >25% CAGR, Consolidated GS3 <3%, and NS3 <1%, with a consolidated RoA target of 2.8%-3%.

Five-Pillar Execution Strategy #

To achieve the revised consolidated targets, LTF is focusing on:

1. Enhancing customer acquisition velocity.
2. Building world-class risk frameworks with a next-gen credit engine.
3. Creating a next-gen digital architecture.
4. Heightening brand visibility.
5. Prioritizing capability building (talent and AI/ML, Credit/Risk, Tech).

Financial Performance (FY24) #

LTF reported a strong financial performance in FY24, driven by robust retail growth and strategic de-risking of its wholesale portfolio.

Loan Book Composition and Growth #

• Consolidated Net Loan Book (as per Board’s Report):

L&T Finance Limited (FY24) ESG Analysis #

Environmental Metrics and Targets #

L&T Finance Limited (LTF) is committed to environmental stewardship with a target of achieving “Carbon Neutrality by FY35.” Key achievements include:

• ~18% year-over-year reduction in Scope 1 and 2 GHG emissions in FY24.
• ~39% of operational power derived from renewable energy sources.
• ~99% of Maharashtra branches and the Head Office transitioned to green power, avoiding ~1,840 tCO2e.
• ~1,982 tCO2e sequestered through plantations, with over 50,000 saplings planted in FY24 and an overall survival rate exceeding 95%.
• Maintained water-positive status, replenishing ~183 lakh KL through watershed management.
• First NBFC in India to report financed emissions for select retail portfolios (Two-Wheeler and Farm Equipment Finance).
• Achieved 100% paperless journeys in several key rural and urban finance products.
• Adoption of ISO 14064-2:2019 for quantifying net GHG removals from its Miyawaki plantation project.

Future targets include financing 75,000 Two-Wheeler EVs by FY25 and achieving carbon neutrality by FY35.

Social Responsibility Programs #

LTF’s social responsibility initiatives focus on digital and financial inclusion, disaster management, environmental sustainability, road safety, and healthcare. Key highlights include:

• “Digital Sakhi” program:
  • Operational in 9 states, impacting over 12.5 lakh community members in FY24 (42 lakh+ since inception), with 80% being women.
  • Linked over 1 lakh individuals to social entitlement schemes valued at over ₹60 Cr in FY24.
  • Social Return on Investment (SROI) of ₹123 for every rupee invested.
• “Project Prakruti”: Over 50,000 saplings planted in FY24 (1.5 lakh+ since inception), supporting biodiversity and farmer income.
• Employee well-being:
  • Average of 40.55 training hours per employee in FY24.
  • ~48% year-over-year increase in field-level women hiring.
  • 27% women representation in the Group Executive Committee.
  • 4.6% women in the workforce (up from 4%).
  • Female-to-male compensation ratio of 1.60.
  • Total employee headcount of 30,534, with over 26,000 in field roles.
• CSR investment: ₹23.83 Cr in FY24, exceeding its obligation by ₹18.03 Cr.

Governance Structure and Effectiveness #

LTF’s governance framework is robust and emphasizes independence and ethical conduct. Key aspects include:

• Board of 11 Directors, including 6 Independent Directors (33% women).
• Separation of Chairman (Non-Executive Director) and MD & CEO roles.
• Average Board meeting attendance of ~98%.
• Key Board committees (Audit, Nomination and Remuneration, CSR & ESG, Risk Management, IT Strategy, Stakeholders’ Relationship and Customer Protection) predominantly chaired by Independent Directors.
• ALCO chaired by the MD & CEO.
• Merger of lending subsidiaries into a ‘Single Lending Entity’ completed, simplifying the corporate structure.
• Ethical conduct guided by a Code of Conduct, POSH policy (1 complaint received and resolved in FY24), and a Vigil Mechanism (38 complaints received and resolved in FY24).
• ESG governance integrated with a Board-level CSR & ESG Committee and ESG-linked KPIs for senior management.

Sustainability Investments and ROI #

LTF has integrated sustainability into its financing strategy and operations. Key investments and returns include:

• Raised ₹9,444 Cr in sustainability-focused/priority sector loans in FY24, including US$250 Mn from ADB and JICA for social impact lending.
• At least 40% of the ADB/JICA proceeds earmarked for women borrowers.
• Sustainable Finance Framework (SFF) with a second-party opinion from CRISIL.
• Operational investments in transitioning branches to green power, energy-efficient infrastructure, and water conservation projects.
• “Jal Vaibhav” project replenished ~183 lakh KL of water in FY24.
• The SROI for completed Digital Sakhi projects is ₹123.
• Targeting ₹4,000 Cr in FY25 through sustainability-focused/priority sector lending.

ESG Ratings and Peer Comparison #

LTF has achieved strong ESG ratings:

• CDP (Climate Change 2023): ‘A-’ (Leadership band).
• Sustainalytics (November 2023): ESG Risk Rating of 16.5 (Low risk).
• MSCI (March 2024): ESG Rating of ‘A’.
• S&P Global Corporate Sustainability Assessment (January 2024): Top decile performer.

These ratings position LTF favorably among its peers.

Regulatory Compliance and Future Preparations #

LTF operates under a comprehensive regulatory framework. Key compliance highlights:

• Compliant with applicable Secretarial Standards and Corporate Governance requirements.
• RBI imposed a ₹2.5 Cr penalty on the erstwhile L&T Finance Limited for non-compliance; paid and corrective actions taken.

Future preparations:

• Guided by the ‘5-Pillar Strategy’ aimed at achieving revised ‘Lakshya 2026’ goals.
• Cognizant of emerging risks, including climate-related and cybersecurity risks, and is developing frameworks to manage them, including compliance with TCFD disclosures.

Financial Analysis Report: L&T Finance Limited (LTF) - FY24 #

Executive Summary & Strategic Overview #

L&T Finance Limited (LTF) demonstrated robust financial and strategic performance in FY24, achieving its “Lakshya 2026” retail-level targets significantly ahead of schedule. The company is now focused on converging these goals at a consolidated level by FY26. Key strategic thrusts include aggressive retailisation, accelerated reduction of the wholesale book, digital transformation towards a “Fintech@Scale” model, and a strong emphasis on ESG principles. The successful merger of subsidiaries into a “Single Lending Entity” simplifies the corporate structure and is expected to enhance operational efficiencies and governance. LTF’s market capitalisation stood at ₹39,362.59 Cr as of March 31, 2024.

Financial Performance Analysis (FY24) #

Profitability #

• Highest-ever annual Profit After Tax (PAT) of ₹2,320 Cr, a 43% YoY increase.
• Net Profit Margin (Consolidated) improved to 16.49% in FY24 from 11.55% in FY23, driven by strong retail book growth.
• Return on Assets (RoA - Consolidated): Q4FY24 at 2.19%; FY24 at 2.32%. The revised Lakshya 2026 target for consolidated RoA is 2.8%-3%.
• Return on Equity (RoE): 10.35%.
• Net Interest Margin + Fees (NIIM + Fees): ₹8,724 Cr in FY24.

Loan Book & Disbursements #

• Total Retail Disbursements: ₹54,267 Cr (29% YoY growth).
• Retail Loan Book: Crossed ₹80,000 Cr, growing 31% YoY.
• Retailisation: Achieved 94% of the overall portfolio (original Lakshya 2026 target: >80%; revised target: >95%).
• Wholesale Book: Reduced by 72% YoY to ₹5,528 Cr from ₹19,512 Cr, now constituting 6% of the total book.
• Rural Business Finance: Disbursements of ₹21,495 Cr (27% YoY growth); book size crossed ₹24,000 Cr (32% YoY growth).
• Farmer Finance: Disbursements of ₹6,848 Cr; book size at ₹13,892 Cr (8% YoY growth despite industry de-growth).
• Urban Finance (Two-Wheelers, Personal Loans, Home Loans & LAP): Book size at ₹36,089 Cr (30% YoY growth).
• SME Finance: Disbursements of ₹3,657 Cr; book size approached ₹4,000 Cr.

Asset Quality #

• Consolidated Gross Stage 3 (GS3): Reduced by 159 bps YoY to 3.15% (Lakshya 2026 target: <3%).
• Consolidated Net Stage 3 (NS3): Reduced by 72 bps YoY to 0.79% (Lakshya 2026 target: <1%).
• Provision Coverage Ratio (PCR - Consolidated): 76%.
• The pristine asset quality is noteworthy given the significant rural retail market presence.

Capital & Liquidity #

• Capital to Risk (Weighted) Assets Ratio (CRAR): 22.84%.
• Debt-Equity Ratio: 3.35 (FY24) down from 3.97 (FY23).
• Weighted Average Cost (WAC) of Borrowing: Maintained stability, increasing marginally by 34 bps YoY to 7.80% despite a rising interest rate environment, attributed to astute liability management.
• Credit Rating: Highest ‘AAA’ reaffirmed by four leading agencies (CRISIL, ICRA, India Ratings, CARE).
• Sustainable Finance/Priority Sector Lending: ₹9,444 Cr raised/deployed, including US$250 Mn from ADB and JICA.

Strategic Initiatives and Execution #

Lakshya 2026 & Revised Targets #

• Achieved original retail-level targets (Retailisation >80%, Retail Book Growth 25% CAGR, Retail GS3 <3%, NS3 <1%) in Q3FY24, two years ahead of schedule.
• Revised Consolidated Lakshya 2026 Goals: Retailisation >95%, Retail Book Growth >25% CAGR, Consolidated GS3 <3%, NS3 <1%, Consolidated RoA 2.8%-3%.

Merger & Single Lending Entity #

• Successfully completed merger of L&T Finance Limited, L&T Infra Credit Limited, and L&T Mutual Fund Trustee Limited with the parent entity (now L&T Finance Limited) effective December 4, 2023.
• Benefits: Simplified corporate structure, enhanced governance, improved liability management, operational efficiencies, seamless compliance with RBI Scale-based Regulations.

5-Pillar Execution Strategy #

1. Enhancing Customer Acquisition: Broadening customer funnel and velocity, harvesting existing customer base (2.3 Cr+) through cross-sell/up-sell (FY24 average: ~45% of retail disbursements by count, ~35% by value), and launching contiguous products. Focus on expanding reach in Rural Group Loans (34,500 new villages activated in H2FY24) and Two-Wheeler Finance (21,524 active sourcing points in Q4FY24).
2. Sharpening Credit Underwriting: Building a self-learning, next-gen integrated underwriting platform leveraging bureau data, account aggregator framework, and alternate data signals for robust, omni-product, omni-customer credit assessment.
3. Implementing Futuristic Digital Architecture (“Fintech@Scale”):
   • Customer Experience Design: Revamping D2C app (PLANET) and customer portal. PLANET app has 91 lakh+ downloads, 4.3-4.4 star ratings, and facilitated >50K business opportunities.
   • Application & Process Engineering: Business process re-engineering through automation and AI (e.g., Robotic Process Automation saving >2 lakh human hours). Migrating Home Loans and SME journeys to Salesforce.
   • Digital Finance Delivery: 100% paperless journey in Rural Group Loans, Two-Wheeler, Farm Equipment, Personal Loans, and SME Finance. 100% digital disbursements (Rural + Urban). High eNACH penetration (Urban: 96%) and digital collections (Rural: 25%, Urban: 94%).
   • Robust IT Infrastructure & Infosec: Isolated recovery environment, in-house collection app (BRAKE), comprehensive cybersecurity framework, and IT review framework for critical applications.
4. Heightened Brand Visibility: Targeted marketing campaigns across rural and urban India (print, outdoor, digital, industry forums). Launched sonic identity.
5. Capability Building: Induction of seasoned industry veterans, strengthening second-line leadership (National Sales Heads), and focus on talent in AI/ML, Credit/Risk, and Tech/Engineering.

Business Segment Performance and Outlook #

Farmer Finance (Farm Equipment & Agri-Allied) #

• Farm Equipment Finance: Achieved stable disbursements (₹6,848 Cr, ~1 lakh tractors financed) and 8% YoY book growth (₹13,892 Cr) despite a 7% industry de-growth due to skewed rainfall. Strong dealer/OEM relations and digital paperless journey (TAT < 24 hours) were key. Upsell disbursements grew 26% YoY. Collection efficiencies >90%.
• Agri-Allied Finance: Launched Warehouse Receipt Finance in Q3FY24 with a digital-assisted journey.
• Outlook: Anticipated positive monsoon in FY25 expected to improve rural income and demand.

Rural Business Finance (Rural Group Loans & Micro Finance, Micro LAP) #

• Rural Group Loans & Micro Finance: Disbursements of ₹21,495 Cr (27% YoY growth), book size ₹24,716 Cr (32% YoY growth). Added 15.4 lakh new customers. Collection efficiency 99.7%+. Digital collection contribution increased from 3% to over 21%.
• Micro LAP: Scaling up post-successful pilot.
• Outlook: Further horizontal expansion planned in promising markets. Positive monsoon to benefit.

Two-Wheeler Finance #

• Industry grew 9% YoY (~1.8 Cr units). Finance penetration increased from 50% to 60%. EV Two-Wheeler segment grew 30%.
• LTF financed ~9 lakh units, growing market share. Disbursements ₹8,586 Cr (21% YoY growth), loan book ₹11,205 Cr (25% YoY growth).
• Strategy: In-house algorithm-driven underwriting, focus on Prime and Near Prime customers, OEM expansion (ICE & EV). Shubharambh loans (no hypothecation for NTC) launched.
• Outlook: EV segment evolution to significantly influence industry trajectory.

Home Loans & Loan Against Property (LAP) #

• Market demonstrated resilience despite high rates. LTF disbursements grew ~59% YoY to ₹7,500 Cr; book grew 38% to ₹18,443 Cr.
• Strategic shift towards self-employed non-professionals (SENP) for better yields. Focus on direct/employee sourcing and Approved Project Finance (APF)/Developer channel.
• Outlook: Stable market conditions expected to support continued growth.

Personal Loans #

• Industry size ₹13 lakh Cr. Regulatory measures (increased risk weights, digital lending app scrutiny) to ensure responsible growth.
• LTF focused on calibrated growth, leveraging existing Two-Wheeler customer base (repeat cross-sell ~51% of disbursements).
• Disbursements showed de-growth of 12% YoY; modest book growth of 18% to ₹6,440 Cr due to conservative policy. Collection efficiency 98.8%.
• Outlook: Well-positioned to navigate evolving regulatory landscape and continue growth.

SME Finance #

• MSME credit demand increased 10% YoY (March 2024). LTF expanded from 17 to 109 locations.
• Disbursements of ₹3,657 Cr; book size ₹3,905 Cr; 20,000+ customers. March 2024 saw highest-ever monthly disbursement (₹458 Cr).
• Outlook: Growth expected from deeper geographic/channel expansion and new product launches.

Wholesale Finance (Real Estate & Infrastructure) #

• Aggressive rundown continued. Portfolio reduced by 87% over two years to ₹5,528 Cr (Real Estate: ₹2,337 Cr, Infrastructure: ₹3,191 Cr), constituting 6% of total book.
• Outlook: Expected to reduce further. Macro outlook guidance discontinued due to negligible on-book portfolio.

Risk Management Framework #

Overall Structure #

Apex-level Risk Management Committee (RMC) supervises the Board-approved framework covering risk appetite, limits, dashboards, and Early Warning Signals (EWS). Proactive risk management culture, with ICAAP covering credit, market, liquidity, operational, strategic, regulatory, climate, and model risks.

Credit Risk #

Bolstering existing data/analytics-based underwriting with a new-age engine using bureau, account aggregator, and alternate data. Advanced dashboards for real-time trend identification and EWS model for proactive stress signal identification. This has led to GS3 reduction from 4.74% (FY23) to 3.15% (FY24).

Operational Risk #

Governed by Operational Risk Management Policy. Risk and Control Self-Assessment (RCSA) and Key Risk Indicator (KRI) testing automated for real-time monitoring. “Project Overhaul 2.0” strengthening critical processes.

Market & Liquidity Risk #

Maintains positive cumulative liquidity gap up to 1 year. Contingency Funding Plan (CFP) in place. Positive interest rate sensitivity gap over one year. ALCO oversees these.

Infosec Risk #

ISO 27001 certified Information Security Management System (ISMS). 3-tier security architecture with DR. Cybersecurity solutions for perimeter/endpoint protection, vulnerability assessments, and 24x7 monitoring. Cyber insurance in place.

Audit and Compliance Analysis of L&T Finance Limited (FY24) #

Auditor’s Opinion and Qualifications #

The Independent Auditors, KKC & Associates LLP, issued an unmodified opinion on both the Standalone and Consolidated Financial Statements for the year ended March 31, 2024. This signifies that the financial statements present a true and fair view in conformity with Indian Accounting Standards (Ind AS) and the Companies Act, 2013. No qualifications were made to the audit opinion.

Key Audit Matters (KAMs) #

Standalone Audit:

1. Allowance for Expected Credit Loss (ECL) on Retail Loan Assets: Significant judgment and estimation uncertainty involved in classifying loan assets and applying measurement principles for ECL, given the materiality of retail loan assets (₹76,497.78 crores, 94.02% of total assets).
2. Information Technology (‘IT’) Systems and Controls: The complex IT architecture supporting high-volume daily transactions necessitates robust IT general and application controls for reliable financial reporting.

Consolidated Audit:

3. Impairment of Goodwill on Consolidation: Significant management judgment is required in the impairment assessment, particularly in estimating future cash flows, discount rates, and terminal growth rates for value-in-use calculations.

The audit reports include an “Other Matter” paragraph clarifying that select indicators for FY23 were assured by a previous practitioner and that the FY23 comparatives have been restated due to the amalgamation effective April 1, 2023.

Key Accounting Policies and Changes #

The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) under the Companies Act, 2013. Key accounting policies include:

• Business Combinations: The merger of L&T Finance Limited, L&T Infra Credit Limited, and L&T Mutual Fund Trustee Limited with the Company (effective April 1, 2023) was accounted for as a common control business combination using the “pooling of interest” method. Assets and liabilities were recorded at their carrying amounts, and prior period information was restated.
• Financial Instruments: Classified and measured based on contractual cash flow characteristics and the business model. Retail loan assets are primarily measured at amortised cost and are subject to ECL. The wholesale loan portfolio was reclassified to Fair Value Through Profit & Loss (FVTPL) in FY23 due to a change in business model.
• Impairment (ECL): A three-stage model is used for impairment based on changes in credit quality since initial recognition (12-month ECL for Stage 1, lifetime ECL for Stage 2 and Stage 3). Significant judgment is involved in determining SICR, PD, LGD, and the impact of forward-looking macroeconomic scenarios.
• Revenue Recognition: Interest income is recognized using the Effective Interest Rate (EIR) method. Fee and commission income is recognized upon satisfactory completion of performance obligations.
• Leases (Ind AS 116): Right-of-use assets and lease liabilities are recognized.

There were no significant changes in accounting policies during FY24. The Ministry of Corporate Affairs (MCA) did not notify any new standards or amendments applicable to the Company for FY24.

Internal Control Effectiveness #

The Independent Auditors’ Report on Internal Financial Controls (Annexure B to Standalone Report, Annexure A to Consolidated Report) states that the Company (and its Indian subsidiaries for consolidated) has, in all material respects, an adequate internal financial control system with reference to the financial statements, and such controls were operating effectively as at March 31, 2024. This is based on criteria established by the Company considering essential components of internal control stated in the Guidance Note by ICAI. Management also accepts responsibility for establishing and maintaining internal controls for financial reporting and has evaluated their effectiveness.

Regulatory Compliance Status #

• RBI Compliance:
  • The Company is registered with the RBI as an NBFC-ND-SI. Post-merger, it has applied for a Certificate of Registration (CoR) as an NBFC-ICC and complies with applicable NBFC-ICC guidelines pending CoR receipt. It is categorized as an Upper Layer NBFC under Scale-Based Regulations (SBR).
  • A penalty of ₹2.5 crore was imposed by the RBI on L&T Finance Limited (a pre-merger entity) in October 2023 for non-compliance with certain provisions of the NBFC Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, based on inspections for FY21 and FY22. The penalty was paid, and corrective actions were taken.
  • The Company maintains the required Capital to Risk (Weighted) Assets Ratio (CRAR). For FY24, consolidated CRAR was 22.84% (Tier I: 21.02%).
• SEBI Compliance: The Company has complied with SEBI Listing Regulations, including Corporate Governance requirements and BRSR reporting.
• Companies Act, 2013: Complied with applicable provisions.
• Taxation:
  • The BRSR (Principle 1, Question 2) details several GST-related penalties imposed on L&T Finance Limited (pre-merger) and L&T Housing Finance Limited (pre-merger) by various state GST authorities for FY18, FY19, and other periods. These relate to issues like excess ITC claims, mismatches, and short tax payments. Some of these demands are under appeal.

Legal Proceedings and Potential Impact #

• Contingent Liabilities (Consolidated - Note 44):
  • Claims against the Group not acknowledged as debt include:
    • Income Tax matters in dispute: ₹132.09 Cr (FY24) vs ₹129.59 Cr (FY23)
    • Service Tax/Sales Tax/VAT matters in dispute: ₹30.53 Cr (FY24) vs ₹16.24 Cr (FY23)
    • Legal matters in dispute: ₹61.98 Cr (FY24) vs ₹33.91 Cr (FY23)
  • Bank Guarantees outstanding: ₹1.40 Cr (FY24) vs ₹1.25 Cr (FY23)
  • Letters of Credit/Comfort: ₹2.71 Cr (FY24) vs ₹3.37 Cr (FY23)
• Commitments:
  • Estimated amount of contracts remaining to be executed on capital account: ₹27.16 Cr (FY24) vs ₹13.83 Cr (FY23)
  • Undrawn/Undisbursed commitments (standby facilities, etc.): ₹1,529.73 Cr (FY24) vs ₹1,445.85 Cr (FY23)

The Company states that in respect of disputes, it is of the view of succeeding in appeals and does not expect any significant liabilities to materialize. The Board’s Report also states no significant and material orders passed by regulators/courts would impact the going concern status or future operations.

Related Party Transactions (RPTs) #

The Company has a Board-approved policy on RPTs, ensuring they are on an arm’s length basis and in the ordinary course of business. All RPTs require prior Audit Committee approval.

Key Related Parties include:

• Holding Company: Larsen & Toubro Limited
• Fellow Subsidiaries: LTIMindtree Limited, L&T Technology Services Limited.
• Key Management Personnel (KMPs) and their relatives.

Nature of transactions (Consolidated - Note 39) for FY24 includes:

• Brand license fees paid to Larsen & Toubro Limited: ₹29.89 Cr
• Interest expense on borrowings/NCDs from Larsen & Toubro Limited: ₹45.52 Cr; LTIMindtree Ltd: ₹4.52 Cr; L&T Technology Services Ltd: ₹0.50 Cr
• Professional fees paid to Larsen & Toubro Limited: ₹68.91 Cr; LTIMindtree Ltd: ₹56.32 Cr