Laxmi India Finance FY26: Funding tailwinds, branch scale-up, and a one-off asset quality shock

Laxmi India Finance Limited closed FY26 with a familiar NBFC story arc: steady balance sheet growth, improving funding costs, and a clear effort to institutionalise operations after becoming a listed company in August 2025. The company reported Assets Under Management (AUM) of INR 1,626.26 crore as of March 31, 2026, up 27.35% year-on-year from INR 1,277.02 crore.

Profitability expanded faster than the book. Profit after tax (PAT) for FY26 came in at INR 49.68 crore, up 38.34% year-on-year, while profit before tax (PBT) rose 39.48% to INR 66.05 crore. Net interest income (NII) grew 38.65% to INR 161.78 crore, supported by the combination of AUM growth and lower funding costs.

A key context point for FY26 is that the company classified the year as a transition year, not only because it was the first year as a listed entity, but also because it invested in branch expansion, technology infrastructure and manpower. Operating expense for FY26 rose to INR 102.15 crore from INR 74.16 crore in FY25.

Funding profile improves after IPO and rating upgrade

One of the more visible operational improvements in FY26 was the cost of borrowing. The company’s average cost of borrowings declined to 10.80% in FY26 from 11.48% in FY25, while NIM expanded to 11.26% from 10.47%.

In the earnings call, the treasury head stated that incremental borrowing cost during FY26 was around 10.25% to 10.30%, with an intent to keep increasing the share of bank borrowings and reduce reliance on NBFC funding. Management also linked improving sanction terms to the post-IPO capital position. The external credit rating (Acuite) was upgraded from A minus to A with stable outlook.

Capitalisation also strengthened materially. Net worth increased to INR 465.47 crore in FY26 from INR 257.89 crore in FY25. Capital adequacy (CRAR) improved to 26.12% (Tier I 25.61%), providing balance sheet headroom for growth.

AUM composition stays MSME-heavy, with new products scaling up

The company operates across secured MSME and retail lending products, including MSME loans, construction and loan against property (LAP), vehicle finance, wholesale lending and personal loans. The FY26 AUM mix reported in the investor presentation shows a portfolio anchored in MSME.

MSME AUM stood at INR 1,298.68 crore in FY26. Vehicle finance AUM was INR 145.82 crore. Construction and LAP was INR 85.61 crore. Wholesale lending expanded to INR 52.97 crore, while personal loan AUM reached INR 43.18 crore.

The operating footprint expanded to 176 branches across Rajasthan, Gujarat, Madhya Pradesh, Chhattisgarh, Uttar Pradesh and Maharashtra. Customer base increased to 42,809 in FY26 from 35,568 in FY25. Management highlighted that 37.1% of borrowers are first-time borrowers and that multi-channel sourcing includes branches, direct sales associates and the Laxmi Mitra referral app.

Asset quality: reported ratios reflect a one-off event

On asset quality, FY26 reported GNPA of 2.13% and NNPA of 1.08%, with overall PCR of 49.43%. The company explicitly highlighted a one-off credit event referenced as the Up Money default. The asset quality slide presents a with and without view.

In FY26, credit cost is shown at 1.06% with the Up Money default and 0.18% without it. Similarly, GNPA is shown at 2.13% with the event and 0.80% without it, while NNPA is 1.08% with the event and 0.53% without it.

During the concall, management stated that the Up Money balance was around INR 19 crore and that the company had made provisions of about INR 11 crore. Management indicated it is pursuing recovery through legal process and expects court outcomes in its favour, referencing orders received by peers.

The company’s collections model is positioned as branch-led and field-intensive, with early delinquency monitoring and relationship-based recovery. Provisioning coverage snapshots in the presentation show Stage 3 PCR at 49.43%, Stage 2 PCR at 2.16% and Stage 1 PCR at 0.39%.

Medium-term targets: 30% to 35% AUM growth and return metrics focus

Management outlined medium-term strategic priorities in both the presentation and concall. The company targets operating leverage and profitability improvements, with the investor presentation explicitly stating a targeted ROA of 3.50% to 3.75% and ROE of 13.50% to 14.00%.

On growth, management indicated an expectation of AUM compounding at around 30% to 35% annually over the medium term. In the same breath, management also guided to PAT growth of around 40% to 45% in the current year, supported by improving operating leverage and branch productivity.

Branch expansion remains part of the plan, but management stressed a cautious, research-driven approach to entering new geographies. During Q and A, management stated that branch breakeven typically happens in about 7 to 8 months, and that the breakeven AUM at branch level is around INR 1.5 crore to INR 2 crore.

What to track from here

FY26 combines three themes that investors are likely to keep monitoring. First is the durability of funding gains. The company’s blended cost is already lower, and management expects further reduction of around 20 to 25 basis points, subject to broader interest rate conditions.

Second is how expansion changes concentration risk. Management stated that around 82% of AUM is from Rajasthan, around 11% from Madhya Pradesh and around 7% from Gujarat, with the remainder in other states. Execution in Uttar Pradesh and Maharashtra will matter if the company wants the geographic mix to diversify meaningfully.

Third is the recovery and learnings from the Up Money event. The company presented a clear with and without view and quantified the provision in the concall. Even if the event is truly one-off, the next few quarters will shape market confidence in underwriting controls, DA related exposures and recovery effectiveness.

Overall, FY26 shows a lender scaling through branches and technology, with improving institutional access to liabilities post listing. The key test will be whether the company can convert its stronger capital base and lower cost of funds into sustained, controlled growth while keeping asset quality stable as the footprint widens.