Valuation Metrics and Recent Changes
L&T Finance Ltd, a key player in the Non Banking Financial Company (NBFC) sector, currently trades at ₹300.20, slightly up from its previous close of ₹297.85. The stock’s 52-week range spans from ₹131.10 to ₹329.40, indicating significant appreciation over the past year. The company’s valuation grade has recently been upgraded from “expensive” to “very expensive,” driven primarily by its P/E ratio of 26.54 and a P/BV of 2.85. These figures mark a clear premium relative to its historical averages and signal a shift in market perception.
The enterprise value to EBITDA (EV/EBITDA) ratio stands at 15.70, while the EV to EBIT is 15.99, both suggesting that the stock is priced at a premium compared to many of its NBFC peers. The PEG ratio of 2.61 further indicates that the stock’s price growth is outpacing its earnings growth, a factor that investors should weigh carefully.
Peer Comparison Highlights
When compared with other prominent NBFCs and financial services companies, L&T Finance Ltd’s valuation remains elevated but not the highest in its category. For instance, Billionbrains trades at a P/E of 58 and an EV/EBITDA of 42.84, while ICICI Lombard’s P/E ratio is 35.72 with an EV/EBITDA of 27.9. On the other hand, companies like REC Ltd and Aditya Birla Capital are relatively more attractively valued, with P/E ratios of 5.56 and 25.67 respectively.
This peer context underscores that while L&T Finance Ltd is expensive, it is not an outlier in the sector, where several companies command very high valuations due to growth prospects and market positioning.
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Financial Performance and Returns Analysis
Despite the premium valuation, L&T Finance Ltd has delivered robust returns over multiple time horizons. The stock has outperformed the Sensex significantly, with a one-year return of 126.74% compared to the Sensex’s 10.22%. Over three and five years, the stock has returned 225.24% and 194.60% respectively, dwarfing the Sensex’s 37.26% and 63.15% gains. Even on a decade-long basis, L&T Finance Ltd has delivered a remarkable 486.33% return, nearly doubling the Sensex’s 254.07% growth.
This strong performance justifies, to some extent, the elevated valuation multiples, as investors appear willing to pay a premium for sustained growth and market leadership in the NBFC sector.
Quality Metrics and Dividend Yield
From a quality perspective, the company’s return on capital employed (ROCE) stands at 8.59%, while return on equity (ROE) is 10.24%. These figures, while respectable, are moderate compared to some peers, suggesting that the company is generating reasonable but not exceptional profitability relative to its capital base. The dividend yield remains modest at 0.90%, indicating that the stock’s appeal is primarily growth-driven rather than income-oriented.
Valuation Grade and Market Sentiment
The MarketsMOJO Mojo Score for L&T Finance Ltd is 64.0, with a Mojo Grade upgraded from Sell to Hold as of 14 May 2025. This reflects a cautious optimism about the stock’s prospects, balancing its strong growth and returns against the stretched valuation. The market capitalisation grade is 2, indicating a mid-sized company with room for further expansion but also some volatility risk.
Price Movement and Trading Range
On 19 February 2026, the stock recorded a day’s high of ₹303.00 and a low of ₹295.65, closing near the upper end of this range. The day change was a positive 0.79%, signalling steady investor interest. The proximity to the 52-week high of ₹329.40 suggests that the stock is trading near its peak levels, which may temper upside potential in the short term.
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Implications for Investors
Investors considering L&T Finance Ltd should weigh the company’s strong historical returns and market position against its current valuation premium. The elevated P/E and P/BV ratios imply limited margin for valuation expansion, and the PEG ratio above 2.5 suggests that earnings growth may not fully justify the current price. However, the company’s consistent outperformance relative to the Sensex and peers indicates that it remains a compelling growth story within the NBFC sector.
Given the Mojo Grade upgrade to Hold, the recommendation is to maintain a cautious stance. Investors already holding the stock may consider partial profit booking near current levels, while new entrants should evaluate entry points carefully, ideally on any price corrections or consolidation phases.
Historical Valuation Context
Historically, L&T Finance Ltd’s P/E ratio has fluctuated between the mid-teens and low twenties, making the current 26.54 a notable premium. Similarly, the P/BV ratio of 2.85 is elevated compared to past averages closer to 2.0. This shift reflects changing market dynamics, including improved earnings visibility, sectoral tailwinds, and investor appetite for NBFCs with strong growth trajectories.
Nonetheless, the valuation premium also increases the risk of volatility if earnings growth slows or macroeconomic conditions deteriorate, especially given the NBFC sector’s sensitivity to interest rate changes and credit cycles.
Sector Outlook and Market Conditions
The NBFC sector continues to benefit from rising credit demand, financial inclusion initiatives, and digital lending innovations. L&T Finance Ltd’s diversified portfolio and strategic initiatives position it well to capitalise on these trends. However, regulatory scrutiny and competitive pressures remain challenges that could impact future profitability and valuation multiples.
Investors should monitor key indicators such as asset quality, loan growth, and interest margins, alongside broader economic indicators, to assess the sustainability of the current valuation levels.
Conclusion
L&T Finance Ltd’s transition to a very expensive valuation category reflects strong market confidence in its growth prospects but also raises questions about price sustainability. While the company’s historical returns and sector positioning justify a premium, the elevated P/E, P/BV, and PEG ratios suggest that investors should approach with measured optimism. The Hold rating and Mojo Score of 64.0 encapsulate this balanced view, recommending vigilance and selective participation rather than aggressive accumulation at current levels.
For investors seeking exposure to the NBFC sector, L&T Finance Ltd remains a key contender, but comparative valuation and quality metrics should guide portfolio allocation decisions carefully.
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