L&T Finance Limited delivered exceptional financial performance in Q3FY26, achieving its highest ever quarterly core PAT of ₹760 Cr, representing a 21% year-on-year growth. After accounting for a one-time exceptional impact of ₹29 Cr related to the New Labour Code, the company reported PAT of ₹739 Cr, marking an 18% YoY increase. This strong profitability was supported by record retail disbursements of ₹22,701 Cr, up 49% YoY, demonstrating the company's robust business momentum across all segments.

Financial Performance Highlights

The company's financial metrics showed consistent improvement across key parameters during Q3FY26:

The company achieved its lowest ever Weighted Average Cost of Borrowing (WACB) at 7.25%, contributing to a 19 bps sequential improvement in Net Interest Margins plus Fees to 10.41% from 10.22% in Q2FY26. Total income grew 18% YoY and 8.4% QoQ, while operating costs increased only 7% YoY, leading to PPOP growth of 25%.

Credit Quality and Risk Management

L&T Finance demonstrated significant improvement in asset quality metrics during the quarter. Credit costs moderated from 2.98% in Q2FY26 to 2.83% in Q3FY26, representing a 15 bps QoQ reduction and 8 bps YoY improvement. Excluding a one-time charge of ₹23 Cr on co-borrower provisions, the core credit cost from operations came in at 2.74%, showing a 24 bps reduction on QoQ basis.

The microfinance portfolio showed sustained recovery with collection efficiency improvements:

The company maintained no utilization of macro-prudential provisions during the quarter, indicating the return of the Rural Business Finance vertical to near-normal credit cost trajectory.

Business Segment Performance

All business segments delivered strong growth during Q3FY26, supported by favorable macroeconomic conditions and GST 2.0 reforms:

Rural Business Finance

• Disbursements: ₹6,740 Cr (up 47% YoY, 7% QoQ)
• Book Size: ₹28,976 Cr (up 10% YoY, 6% QoQ)

Farmer Finance

• Disbursements: ₹2,783 Cr (up 12% YoY, 68% QoQ)
• Book Size: ₹16,671 Cr (up 11% YoY, 5% QoQ)

Urban Finance Segments

Technology and Digital Initiatives

The company continued advancing its digital transformation through multiple AI-driven projects. Project Cyclops, the advanced underwriting engine, showed excellent results with Net Non-Starter rates improving significantly:

• Two-Wheeler Portfolio: NNS reduced from 2.36% in Dec'24 to 0.41% in Dec'25
• Farm Business: NNS reduced from ~1.50% in Dec'24 to ~0.4% in Dec'25

Project Nostradamus, an AI-driven automated real-time portfolio management engine, went live in beta mode for Two-Wheeler Finance. The company also launched Project Helios and Project Orion, with Helios processing 5,000+ cases and achieving 30% reduction in turnaround time in the SME business.

Strategic Expansion and Outlook

L&T Finance expanded its Gold Loan business significantly, adding 64 new branches during the quarter and planning to establish 330+ gold loan branches by end of FY26. The company onboarded 7.0 lakh new customers, up from 5.9 lakh in the previous quarter, demonstrating strong customer acquisition momentum.

Managing Director Sudipta Roy expressed confidence in sustaining the business momentum through Q4FY26 and into FY27, supported by the normalization of the Rural Business Finance business and continued benefits from technology initiatives. The company remains committed to achieving its Lakshya 2026 target of 2.8%-3.0% RoA by Q4FY27, with plans to announce Lakshya 31 goals in the April quarter results.

Larsen & Toubro is poised to deliver robust financial results for the October-December quarter, with profit expected to surge by nearly a third. However, investor attention will be firmly fixed on whether the engineering giant can sustain its strong order inflow momentum, particularly amid emerging concerns about Middle East business prospects.

Financial Performance Outlook

The Mumbai-headquartered company's Q3 FY26 financials are expected to demonstrate strong growth across key metrics. According to consensus estimates from four brokerages including HDFC Securities, JM Financial, Motilal Oswal, and Nuvama, the company is well-positioned for significant year-on-year improvements.

Middle East Order Challenges

Despite strong financial projections, clouds are gathering over L&T's Middle East operations. Kuwait is considering cancellation of oil & gas sector tenders worth $8.7 billion due to high budget estimates, with L&T being the lowest bidder for $4.5 billion of these orders. While these orders were not yet part of the company's record ₹6.67 trillion order book as of September, they formed part of the quantified order pipeline of ₹10.4 trillion.

JM Financial analysts noted on January 13 that while some cancelled orders may be retendered after project economics reassessment, delays in Kuwait project awards have prompted them to reduce core order inflow estimates for FY26-FY28 by 5-6%. Additionally, InCred Equities analysts highlighted concerns about Saudi Arabia, where construction industry growth may moderate from the current 24% compound annual rate to single digits, potentially impacting L&T significantly as the kingdom accounts for three-quarters of international infrastructure orders.

Domestic Private Sector Momentum

A key bright spot has been the resurgence of domestic private sector capital expenditure. L&T's infrastructure projects segment received domestic orders worth ₹27,400 crore during Q2, marking 50% growth compared to the previous year and the first time in five quarters that the segment crossed ₹20,000 crore in order inflows.

R. Shankar Raman, whole-time director and CFO, expressed optimism about the trend's continuation, stating that both private sector capital and infrastructure investments showed an uptick. However, he cautioned that while Q2 saw increased private sector order receipts, sustainability of this trend remains to be established.

Strategic Expansion and Diversification

L&T's entry into European markets represents a significant strategic milestone. The company secured its largest contract in the Netherlands in late October, involving high-voltage direct current converter stations for TenneT's offshore wind energy projects in collaboration with Hitachi Energy. This European breakthrough potentially opens vast new markets beyond the Middle East-concentrated overseas business.

Defence and Hi-Tech Manufacturing

The company's technological capabilities are expanding through strategic partnerships in defence manufacturing. L&T has joined forces with Bharat Electronics Ltd for the Advanced Multirole Combat Aircraft programme worth ₹15,000 crore to develop five prototypes, challenging Hindustan Aeronautics Ltd's market position. Additionally, the partnership with General Atomics Aeronautical Systems for manufacturing Medium Altitude Long Endurance drones in India represents significant long-term revenue potential.

Investors will be particularly interested in management commentary on order sustainability, domestic capex trends, European expansion plans, and progress in defence manufacturing capabilities when L&T announces its results.