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.

L&T Finance has announced securing a major contract worth between ₹10 billion and ₹25 billion, marking a significant business development for the engineering and construction conglomerate.

Contract Details

The contract represents a substantial addition to L&T Finance's project portfolio. The value range indicates the scale and importance of this business win for the company.

Business Impact

This contract award demonstrates L&T Finance's continued capability to secure large-scale projects across its business segments. The substantial value range reflects the significant nature of the project and its potential contribution to the company's revenue pipeline.

The contract win strengthens L&T Finance's order book position and showcases the company's competitive positioning in securing major infrastructure and engineering projects. Such large contract awards are typically important indicators of business momentum for engineering and construction companies.

Strategic Significance

Securing contracts in this value range represents L&T Finance's ability to compete effectively for major projects. The contract award adds to the company's existing project portfolio and may provide revenue visibility for future periods.

This development aligns with L&T Finance's focus on winning significant projects across its various business verticals, potentially contributing to its overall growth strategy and market presence in the engineering and construction sector.