L&T Finance Ltd Valuation Shifts: Price Attractiveness Amid Sector Comparisons

Valuation Metrics: A Closer Look

As of 25 Feb 2026, L&T Finance Ltd trades at a price of ₹298.55, slightly down from the previous close of ₹299.60. The stock’s 52-week range spans from ₹132.15 to ₹329.40, indicating significant volatility over the past year. The company’s P/E ratio currently stands at 26.39, a figure that has moderated from previous levels that placed it in the 'very expensive' category. This shift to an 'expensive' valuation grade suggests that while the stock remains priced at a premium relative to earnings, the degree of overvaluation has lessened.

The price-to-book value ratio is another critical metric that has seen a recalibration. At 2.84, the P/BV ratio remains elevated but is consistent with the company’s positioning within the NBFC sector, where asset quality and capital adequacy are closely scrutinised. This ratio indicates that investors are willing to pay nearly three times the book value for L&T Finance Ltd’s equity, reflecting confidence in the company’s growth prospects and asset quality.

Other valuation multiples such as EV to EBIT (15.95) and EV to EBITDA (15.66) further corroborate the stock’s premium valuation status. The enterprise value to capital employed ratio of 1.42 and EV to sales of 9.57 also highlight the market’s expectations of robust operational performance and efficient capital utilisation.

Peer Comparison and Sector Context

When benchmarked against peers, L&T Finance Ltd’s valuation appears more reasonable. Several competitors in the NBFC space, including Billionbrains and ICICI Lombard, are classified as 'very expensive' with P/E ratios of 55.14 and 34.67 respectively, and EV/EBITDA multiples well above 27. Similarly, ICICI Prudential Life Insurance trades at a P/E of 70.16 and an EV/EBITDA of 73, underscoring the premium valuations commanded by leading players in the sector.

Conversely, companies like REC Ltd and Bajaj Housing Finance are rated as 'fairly' valued, with P/E ratios of 5.42 and 29.3 respectively, and lower EV/EBITDA multiples. This spectrum of valuations within the NBFC sector reflects varying growth trajectories, risk profiles, and market perceptions.

L&T Finance Ltd’s PEG ratio of 2.60, while higher than some peers, indicates that the stock’s price is factoring in growth expectations, albeit at a premium. The dividend yield remains modest at 0.90%, consistent with the company’s focus on reinvestment and expansion rather than income distribution.

Financial Performance and Returns

Return on capital employed (ROCE) and return on equity (ROE) are key indicators of operational efficiency and shareholder value creation. L&T Finance Ltd reports a ROCE of 8.59% and an ROE of 10.24%, figures that are respectable within the NBFC sector but suggest room for improvement compared to top-tier peers.

Examining stock performance relative to the broader market, L&T Finance Ltd has delivered impressive long-term returns. Over the past 10 years, the stock has appreciated by 481.40%, significantly outperforming the Sensex’s 256.13% gain. Even over shorter horizons, the company has outpaced the benchmark, with a 1-year return of 122.47% versus Sensex’s 10.44%, and a 3-year return of 237.15% compared to 38.28% for the index.

However, recent year-to-date performance shows a decline of 5.55%, slightly underperforming the Sensex’s 3.51% drop, signalling some near-term headwinds or profit-taking by investors.

Mojo Score Upgrade and Market Sentiment

MarketsMOJO has upgraded L&T Finance Ltd’s Mojo Grade from 'Sell' to 'Hold' as of 14 May 2025, reflecting improved sentiment and valuation appeal. The current Mojo Score of 65.0 indicates a moderate outlook, balancing the company’s growth potential against valuation risks. The market capitalisation grade remains low at 2, suggesting the company is not among the largest NBFCs by market cap, which may influence liquidity and institutional interest.

Despite a minor day change of -0.35%, the stock’s overall trajectory remains positive, supported by strong fundamentals and a resilient business model. Investors should note that the valuation shift from 'very expensive' to 'expensive' signals a more attractive entry point relative to recent peaks, though the premium nature of the stock persists.

Investment Considerations and Outlook

For investors evaluating L&T Finance Ltd, the current valuation metrics suggest a cautious but optimistic stance. The company’s premium multiples are justified by its robust long-term returns and steady operational metrics, yet the elevated P/E and P/BV ratios imply limited margin for valuation expansion.

Comparisons with peers highlight that while L&T Finance Ltd is not the cheapest option in the NBFC space, it offers a balanced risk-reward profile. The company’s ROE and ROCE figures, though moderate, indicate effective capital utilisation, and the relatively low dividend yield suggests reinvestment into growth initiatives.

Market participants should also consider macroeconomic factors impacting the NBFC sector, including interest rate movements, credit growth, and regulatory developments, which could influence future earnings and valuation multiples.

Conclusion: Valuation Adjustment Enhances Price Appeal

L&T Finance Ltd’s recent valuation adjustment from 'very expensive' to 'expensive' marks a meaningful development for investors seeking exposure to the NBFC sector. While the stock remains priced at a premium relative to earnings and book value, the moderation in multiples improves its relative attractiveness compared to peers and historical levels.

The company’s strong long-term returns, solid operational metrics, and upgraded Mojo Grade support a 'Hold' recommendation, signalling that investors should monitor the stock for further valuation normalisation or fundamental improvements before committing additional capital.

Given the dynamic nature of the NBFC sector and broader market conditions, a balanced approach incorporating peer comparisons, valuation trends, and macroeconomic factors will be essential for making informed investment decisions regarding L&T Finance Ltd.

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