LB Finance sets stage for deeper push into two- and three-wheeler financing: Analysts

Friday, 14 November 2025 00:00 - - {{hitsCtrl.values.hits}}

The country’s retail vehicle financing market is heading for a reshuffle as LB Finance (LFIN) absorbs Associated Motor Finance (AMF), with First Capital Research (FCR) projecting that the merger will open a new growth phase for LFIN’s loan book over the next two years.

FCR said in a research note that LFIN’s full acquisition of AMF, approved by the Central Bank’s Governing Board and now converted into a mandatory offer effective 29 October, positions the company to expand into a market niche it has not meaningfully captured before. The Central Bank has indicated that the merger process should be concluded by 31 March 2027.

The transaction, priced at Rs. 50 per share for 113 million shares, gives LFIN control of a specialised lender with 12 branches, 85 marketing officers and 99 recovery officers, and a longstanding presence in the two- and three-wheeler financing space. FCR said LFIN can leverage AMF’s dealer relationships and expertise to deepen penetration in these segments, adding around Rs. 25 billion to its loan portfolio by FY27E.

AMF enters the merger with a comparatively strong balance sheet, posting Tier I and Tier II capital adequacy ratios of 16.06% and 16.05% respectively, both well above regulatory thresholds. FCR said this provides a “sound capital position to facilitate loan growth” once integrated with LFIN.

FCR expects LFIN’s consolidated loan book to remain on a strong upward trajectory, after recording 41.5% YoY growth to Rs. 254.2 billion in 2QFY26, driven by gold-backed lending and leasing. Lower market rates — with the AWPR easing to 8.05% by end-2QFY26, and a rebound in economic activity also supported growth.

FCR forecasts the loan book to expand 54.2% YoY in FY26E and a further 14% YoY in FY27E. This outlook is anchored by a surge in vehicle demand, with new registrations expected to jump 226.1% YoY in 2025E on pent-up demand following the lifting of import restrictions.

Registrations are projected to fall 31.2% in 2026E as the market normalises, but still remain at levels supportive of loan growth. Rising gold prices are expected to continue bolstering the gold loan segment.

LFIN’s asset quality has strengthened, with the NPL ratio declining to 1.55% in 2QFY26 from 2.86% in the previous quarter and 1.91% a year earlier.

FCR expects this improvement, together with a stable interest rate environment, to support its forward earnings profile as the AMF acquisition expands the lender’s reach and reshapes its portfolio mix.