L&T Finance Limited has successfully completed the allotment of subordinated, unsecured, rated, listed, redeemable non-convertible debentures (NCDs) worth ₹50.00 crore on December 31, 2025. The company informed stock exchanges about the completion of this private placement issuance under SEBI regulations.

Allotment Details

The financial services company has structured the NCD allotment with specific parameters designed to strengthen its Tier II capital base. The debentures were allotted to identified investors through private placement basis.

Issue Structure and Terms

The NCDs carry a fixed coupon rate of 7.75% per annum, with the first coupon payment scheduled for December 31, 2026, and annually thereafter. Each debenture will pay ₹7.75 lakh as annual coupon, providing investors with predictable returns over the 10-year investment period.

Capital Enhancement Strategy

The NCD issuance represents L&T Finance's strategic initiative to enhance its subordinated debt portfolio for Tier II capital inclusion. The company had initially planned a base issue size of ₹50.00 crore with a green shoe option of up to ₹150.00 crore, collectively allowing for up to ₹200.00 crore in total issuance.

The debentures are proposed to be listed on the Negotiated Trade Reporting Platform (NTRP) under the New Debt Market of the National Stock Exchange of India Limited, providing liquidity options for investors. The unsecured nature of these instruments reflects the company's strong credit profile, while the subordinated structure supports regulatory capital requirements.

Regulatory Compliance

L&T Finance has completed the allotment in compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. The company has informed both NSE and BSE about the successful completion of this private placement, ensuring full regulatory transparency.

Morgan Stanley has revised its outlook on L&T Finance , raising the price target to ₹160.00 from ₹143.00 while maintaining its 'Underweight' rating. The upgrade reflects improved earnings visibility and operating assumptions, though the brokerage continues to express concerns over valuations and return ratios.

Valuation Framework and Price Scenarios

Morgan Stanley's valuation approach incorporates three distinct scenarios for L&T Finance's future performance:

The base case valuation of ₹160.00 represents the brokerage's most likely scenario, while the bull case assumes accelerated retail asset growth, stronger margin expansion, and reduced credit costs. The bear case factors in potential challenges including slower loan growth and sustained pressure on profitability.

Earnings Upgrade and Financial Projections

Morgan Stanley upgraded its FY26-FY28 earnings per share estimates by 4.00-4.30%, primarily driven by improved margin assumptions and enhanced cost control measures. The brokerage made several key adjustments to its financial projections:

The increase in credit cost assumptions reflects lingering stress in parts of the retail and microfinance lending segments. Additionally, Morgan Stanley rolled forward its valuation timeline by six months to March 2027, which, combined with the earnings upgrades, resulted in a 12.00-13.00% increase in scenario values and the overall price target.

Cautious Outlook Despite Improvements

Despite the numerical upgrades, Morgan Stanley maintains a cautious stance on L&T Finance's medium-term prospects. The brokerage identifies several key concerns that support its continued 'Underweight' rating:

• Slowing microfinance credit cycle expected to cap overall retail loan growth
• Retail loan book growth projected at approximately 20.00% CAGR over FY25-FY28, lower than earlier expansion phases
• Structural issues including excess capital and low return on equity
• Delayed ROE recovery with meaningful improvement likely to take longer than anticipated

Morgan Stanley argues that current market valuations appear to be pricing in a faster recovery in profitability than is realistically achievable, given the expected pace of asset quality normalization and margin improvement.

Business Risk Assessment

The brokerage notes that L&T Finance's business model is entirely focused on the Indian market, creating a direct correlation between company performance and domestic credit conditions. While this India-centric approach provides significant long-term growth opportunities, it also increases the company's vulnerability to cyclical slowdowns in retail lending.

Morgan Stanley's risk-reward update reflects a reassessment of earnings momentum rather than a fundamental shift in conviction regarding the stock's prospects. The brokerage emphasizes that the upgrade is primarily technical, driven by rolling forward valuation timelines and incorporating recent operational improvements rather than a change in the overall investment thesis.