L&T Finance Limited analyst Q&A

Yes. Thank you, ladies and gentlemen, for a very patient hearing. We now move on to the Q&A session. That's the last part. I now invite questions from the audience, please. We request the audience to restrict their questions to one for maximum participation. We have volunteers on both the sides of the hall who will assist you with mics. We request you to provide your name and organization before you ask the question, please. So, Sudipta sir and Sachinn sir, please. Yes. Kindly give me your name and organization before you ask the question,

Sir, this is Ramesh Bhojwani from Mehta & Vakil. First and foremost, many heartiest congratulations on such a wonderful presentation encapsulating each and every aspect of L&T Finance so beautifully. We have moved from physical to digital and used technolo gy, particularly AI. Going forward, we will be doing a much faster, much smoother, but much stronger growth trajectory. The question rather than the thought was we have two masterpieces communicated. One is Project Cyclops and other is Project Nostradamus. Project Nostradamus was a man who saw tomorrow in France in the year 1527. So, would like you to expand on the Project Nostradamus as well as Project Cyclops. What I understand is it stands for cyclical loan operations. Would you like to comment or correct me? Thank you.

So, these are like one of the things that is that when we build products and I talked about the product mindset, we like to give names to the products that we build primarily because it makes it very personal for the development teams and they tend to iden tify with. We also build mascots around this. Project Cyclops obviously is sort of derived from the mythological Greek character with one large eye. The philosophy is that Project Cyclops never blinks. So, basically no credit risk can get past Project Cyclops. So, that is the origin of Project Cyclops. It is the ever-seeing eye which sees each and every small bit of credit risk. So, that is the philosophy behind it. And as you rightly said, Project Nostradamus was a French philosopher and a clairvoyant who saw the future. So, the thought behind Project Nostradamus is an automated portfolio management engine which actually predicts the event before the event is supposed to happen, which helps the teams to monitor the portfolios more granularly and sort of get to the customer before the customer probably becomes unrecoverable. So, that is the process. But it also has to, Project Nostradamus also has a very large cross-angle along with it. Project Nostradamus also identifies customers' cross-potential much earlier than others do. And we are also piloting an undiscovered prime concept within the organization where a customer might not exhibit signs of a prime customer right now but will be a prime customer mayb e 2 to 3 months, three years down the line depending upon his income growth. So, Project Nostradamus helps us to identify those also. So, together these systems are supposed to operate in conjunction. Project Cyclops is obviously the origination layer. Project Nostradamus is a portfolio management layer. But Project Nostradamus in its ultimate avatar will be designed to send feedback to Project Cyclops. And that will happen automatically. Debarag covered it in his presentation. It will take us another 12 to 18 months to build where the signals from Project Nostradamus will go and automatically tighten parameters in Project Cyclops. To the extent that, really the credit managers can go on holiday and sit on a beach while the system operates on its own auto-correcting itself.

Thank you and all the best.

My name is Nitin Naik, Director of Naik Consulting. And I would like to ask the question that, you know, the last division which you have, that is the Gold Finance Division. The gentleman said that, when it was started, the very first day itself, you could one, your customer could get the feeling of, paperless office. So, does it mean that while the negotiations were going on for the takeover, at the same time you were in parallel having the systems put in place for a paperless office.

Not really. But the fact is that more or less when it became clear that we would probably be the successful bidder that is when we started. And what we had done was that we had actually just part of the due diligence process actually mapped the software that the company used. And we had also very clearly mapped what are the process improvements that we need to do. So, it was very, very clearly mapped out as to what we need to do. And during the 3-month integration process that we had, we built everything.

Fine. Thank you so much.

Good evening, sir. Rahul Maheshwari here from Dolat Asset Management. First of all, great insights from entire team. Just one question after implementing Project Cyclops and all the AI tools, how much on an overall basis the cyclicality you expect has reduced from a business perspective? And if you can mention some sensitivity to it, that will be very helpful? Thanks

See, it’s very early days. So, Project Cyclops, for example, Two-Wheelers is about 14-15 months in operation. In the Tractor business, it's about 6 to 8 months in operation. And in the SME business, it's only 2 months in operation. But whatever I can say, gleaning the learnings from the 14 months of Two-Wheeler operations. You see, Two- Wheeler is a very, very aggressive credit product. It's a very, very difficult product to do . And if I were to give you some stats, average Two-Wheeler portfolio industry bounce rates are anywhere between 20% to 22%. This is the average bounce rate. Our Project Cyclops underwritten Two-Wheeler portfolio this month, the gross non -starter bounce rate was 7.15%. That's actually a prime Personal Loans bounce rate. But the fact is that we are not underwriting prime Personal Loans customer. We are underwriting Two-Wheeler customer who are actually the sort of, I would say, near prime customers . So, obviously, the system does a very good job of finely dissecting customers who are actually have a high intent to pay rather than customers who have sort of limited sort of commitment towards sort of completing the tenure of the loan. So, it actually separates out those customers. So, I would say, overall, on the long run, on a cyclicality, probably to reduce by about 50% to 60% is what my gut feeling is. But actually, we would need to run Project Cyclops continuously for 3 years, right, to have a real answer to that number and probably run it through a cycle to get the real answer out. But leaning on my experience of over 27, 28 years in the retail financial sector in India, I would say to reduce cyclical ity by 50%, 60%.

Can I just add? So, you are looking at cyclicality, but ultimate end result has to be reduction in either collection cost or credit cost. And as Sudipta mentioned, the first impact of this will be felt in fourth quarter as far as Two- Wheelers is concerned, because there has to be some seasoning involved and Two-Wheeler was the one which was taken up the first. So, you will see in fourth quarter, the book, as you are seeing that almost 60% of the book have been -- have gone through Project Cyclops and underwritten through Project Cyclops. The balance 40% over a period of time will start running down fast and you will start seeing the impact from Q4. But FY27 will be the year when you will start seeing significant part of the books have, routed or being underwritten through Project Cyclops. And accordingly, H2 of FY27 will really be, I would say, the full impact of credit cost where Sudipta also mentioned in his presentation that what we are targeting is ultimately to move from about 2.75% to 3% down to about 2%. So, directionally, you have seen that barring, micro loans, which we, the challenge which we went through over last about four quarters. I think now each and every business by end of December, even Personal Loans will actually start getting completely routed through Project Cyclops. So, next financial year is when we will start seeing full impact of it on the credit cost.

I will give a little more detailed answer. The fact is that, this is something the efficacy of this tool is something which we are discovering with every passing month. Typically, we have not run Project Cyclops ever in a festive month. And typically , what happens in a festive month, your volumes go up. And normal common sense logic says as your volumes go up, normally a large number of bad customers might slip in . Because what happens is in a large manual process, if you run a sort of credit administration system that is largely manual, as volumes go up, generally trade discipline tends to fray on the edges. In the month of October, we processed about 65,000 - 70,000 Two-Wheeler loans. Sorry, in the month of September. In the month of October, we processed, we actually disbursed about 1,30,000 Two-Wheeler loans. So, actually almost a double size jump in volumes . So, obviously, our feel was and my worry was that, we will see the Gross Non-Starters spike up. It came in at 7.15%, the lowest ever. So, we did high volumes and saw the lowest ever GNS, which means the machine did exactly what it was designed to do, cut a way the bad guys and let the good guys in . So, it is, so this was actually Aha! moment for us. So, as I said, it is a machine, we are trying to give as much disclosure as possible. The presentations were long, probably some of you got bored during the presentations because it was too much of data or too much of, but the fact is that the reason we wanted to give the disclosure to such detail was to give the investor community a good amount of understanding as to what we have built, how it is operating and how it is manifesting it in its business results.

Parikshit

My name is Parikshit, I am from Pkeday Advisors. I have a two -part question. If I understand correctly, Project Cyclops is a fully automated underwriting system. And if that is the case, then why Helios even exists? Because that is both targeting the SME loans and if Project Cyclops is well on its way, then Helios would be redundant .

Very good question. The fact is that Project Cyclops fully automated is very good, for loan ticket sizes to a certain part, where we have the confidence saying that we do not need a single underwriter to look at it. For example, Two-Wheeler, average loan ticket size is 1.1 lakhs, 1.2 lakhs . So, we are comfortable with machine taking the decision. But when the loan size is 25 lakhs, 30 lakhs, 50 lakhs, though the machine is giving you a decision, we want a secondary underwriting to be done. Because if you by chance go wrong, because you have to understand that in machines, you can have bugs. When we built Project Cyclops, we figured out that there were a couple of bugs in the original stages. And they led to some anomalous results. So, we underwrite the files through Project Cyclops. The Project Cyclops gives the first level of underwriting. And then we want a human to look at it also and corroborate that underwriting because the ticket sizes are much larger. When you are underwriting a loan ticket size of 60 lakhs, 70 lakhs, 1 crore, still, we would like a human to look at it till we are confident enough after a history has built of about 12 to 18 months to say the human is not needed anymore. Project Cyclops can do it. So, then, Project Cyclops will do it. But we need to travel that distance. So, that is why, the Helios co -pilot is currently helping our underwriters to supplement the work that Project Cyclops is doing.

Parikshit

Thank you. And if you do not mind, I will just ask another question there is a lot of the data that you showed which shows a downward trend. But how have you controlled for the overall macro situation? Because even the macros have improved, right? So, how should we look at your data from that angle?

So, see, macros have improved in pockets. Macros, again move in cycles . So, one of the things which you saw in the Project Nostradamus tool was that the Project Nostradamus also consumes macro scorecards . So, there is a set of macro scorecards which have been built for Project Nostradamus. And those scorecards are overlaid on a particular geography as well as a particular line of business. For example, if there is a flood in that one particular area, or if there is a drought in that area, the macro scorecard will overlay on that and sort of predict the sort of forward -looking delinquency in that area. So, in that way, we sort of try to addre ss the macros through Project Nostradamus right now. As of now, for example, yes, business growth, you know, there is a GST-2 impact on tractors, there is good rain. So, generally, that has a positive impact. So, macros give you your positive tailwinds, macros give you headwinds as well. So, you cannot plan for macros, unfortunately. So, that is why in part of Project Nostradamus, the tool is that at least, as and when macros keep on happening, at least it gives you an advance warning as to what might happen.

Parikshit

This is the continuation of the same question, if Helios can do it, then what is the difference between Project Cyclops and Helios?

Like Helios, for manual handwriting simplifies your workflow. Like, for example, you will see in the demo, there is a bureau report, which is 900 pages Bureau report, who has got the time to look at a 900 -page Bureau report? Helios translates a 900-page Bureau report into actionable actions in exactly flat 10 second s, and also give you the PD questions. Similarly, Helios has got many parts. Helios has got a Bureau analyzer, Helios has got a banking statement analyzer, Helios will have a GST analyzer, Helios will have, legal, technical, as I talked about it. So, all these modules come in -built. Now, for example, Helios, right now, we have done for SME, but Helios will really be liberating for the mortgage underwriter. Because at times in mortgage underwriting, you have to look at many things. So, average, it takes the industry anywhere between Rs. 18,000 to Rs. 20,000 to underwrite a single mortgage file. My estimate is that Helios in full flow, when you implement it for mortgage, will crash that number by about one-tenth. So, a file that takes Rs. 20,000 to process should be done at Rs. 1,000.

Parikshit

Fine, fine, fine. Thank you so much.

Hi, good evening. Kaitav Shah from Anand Rathi. Sir, my compliments to you for the presentation. I think you have been batting on the front foot today versus last year. It is a commendable job. My question is you touched upon culture, I think a couple of times we heard that. So, how have you implemented this across the organization? Because that is a very difficult thing to do, right? Change your culture.

See, culture does not change without executive sponsorship and executive demonstration. So, the management committee knows that these are the couple of things that we need to do. And the fact is that this discussion with the management committee is very, very transparent. So, each and every member of the management committee is tasked with that task of culture change . So, basically, when the top end of the organization speak in unison , this is something which is probably appreciated in very large organizations, more than smaller organizations, and you strive to bring up the outcome orientation of the organization against the politics that slows down the organizational velocity . Now, when the management committee speaks at one unison, when the entire organization is focused on one key outcome goal, and when you are trying to granularly distill th ese desirable behaviors in each and every person, obviously, HR plays also a very, very strong role. So, you use HR to force multiply your messages. But the fact is that HR cannot alone do it. It is the line managers, it is the support unit managers, it is the, it is the middle managers, who have to speak in unison. And that will only happen if the senior managers actually get out from their office and travel to the nook and corner of the city, of the country. And that is what we have been trying to do. Our people have been literally been on the road, almost like, two to three days a week, our senior teams. And the branch sort of structure, introduction of the silo to matrix structure also has helped. So, is it a job fully finished? I would say no. It is still a work in progress. And it will take a couple of more quarters for this to sort of come to a level of completion, where we think that we have done a reasonabl y good job.

Thanks. Good evening. Hi, this is at the back. Yes. Hi, good evening. This is Namit Arora from InGrowth Capital. Sudipta and team compliments on the phenomenal progress over the last year. And thank you for a very detailed set of presentations. My question is, company has made a lot of progress on various areas like technology, strategy, execution. But sitting today, are there any things that you worry about as a company and as a management team.

Well, there are many things we worry about. We are very, very candid about it. We are present in some cyclical businesses. We are present in some cyclical businesses. We are present in businesses where there are event risks. For example, JLG lending is a business that has event risk. We saw policy decisions in one particular state, suddenly tank collection efficiencies and our team struggling to keep afloat. These are the things that we worry about. So, one of our objectives is also try to reduce cyclicality or exposure of cyclicality to our business. So, that is one of our major objectives. The second thing, obviously, is that we, one thing which keeps us awake is the spectre of losing our best people. Over the last couple of quarters, we have become a magnet for technology talent and because of some of the work that we have been doing. And trust me, word spreads very fast in the community that this place, you do get to do good work . And people have been coming and joining us. In fact, for that matter, this year, we have actually got very good people from all the top IITs and we really did not struggle to hire them because we felt that all of them looked at the RAISE 24 videos and realized and decided that this is a place where work can happen. And so, they decided to join us. And when we asked them why, what pushed you, they said RAISE 24 videos on YouTube. That is what pushed us. So, the other thing that keeps us awake is losing some of our best people. And obviously, again, geopolitical risk and any other sort of risk we cannot measure or we cannot anticipate sort of worries us. Apart from that, I think we have a fair bit of contr ol on how to underwrite, how to manage customers, how to manage credit risk. Yes, we have dragged from a back book, which is underwritten by legacy algorithms. As and when that clears, the real cost of or the real impact of what we have been doing over the last 18 months will start appearing in the balance sheet and in the profitab ility numbers.

Thank you very much and all the best to the entire team. Thank you.

Hi, sir. This is Himanshu here from Aditya Birla Sun Life. So, firstly, congratulations on the great Investor Day that you have pulled and also the way you have delivered in the last 12 months. But can you put some perspective? I have a very basic question here on the JLG. When this entire fiasco started about the higher leverage and particularly exposed to most entities being exposed to greater than three plus lender. At the start of the fiasco, we were also having somewhere between 50% to 20% of the book. But the outcomes, the way you have delivered has been a far better. Can you just help us by giving some what prudent measures in your underwriting, which ultimately results to a better outcome?

I think, if you go back to some of our presentations, you will get that. But, a couple of things we have been following always. If you look at the MFIN guidelines that came in June, July of this year, which said that, greater than two lakhs, threshold, should not be breached, not more than three loans should be breached, etc. And all those things that came in, we have been following those guidelines since 2022 or 2021. So, what MFIN introduced in 2025, we have been following those guidelines since 2021. The second thing that we did was that we realized early on that a crisis is coming. We realized sometime around October, November of 2023, that things are going to get worse. So, what we started doing was that starting from Jan of 2024, we started off cutting off repeats and started taking our income thresholds up, especially for some of our repeats. And also tightening some of our through-the- door ingress of customers. The other thing that we did was that we beefed up our collections, because one of the things we realized that our accounts per collector was at about 580 before the crisis. We said that we need to bring down the because we had a sense that something was coming. We said that we have to bring down our accounts per collector to about 450 to 480 levels. So, we actually pushed in 1,000 more people into collections, before even the crisis hit to bring down our accounts per collector from 580 to 480 or 450 or depending upon the markets. So, and plus, at the end of the day, the JLG business is about brut al discipline. The fact is that, unless you are able to maintain the discipline of the workforce and a large amount of workforce on the ground, and unless you digitize to the last tier and do not leave anything to interpretation, you will not be able to ma nage this. Our workforce is very, very disciplined, we are an extremely disciplined management team, we are an extremely hardworking management team, and our every process in the JLG business is digitized. Through all this and obviously through proactive portfolio management, we have managed to weather this storm. And the fact is that our next step will be to make sure that we take out cyclicality as much as we can from this business, though we cannot plan for event risk. So, obviously, we have said during our analyst calls that our objective will be to build back the macroprudential provisions over a period of time, and we will do that .

Sure. The second is the Project Cyclops and some of the rule engines which you have developed in the last basically sometime in the last one to two years. I think, is it like, because many of your team leaders and many of you have come from a larger bank where they are the early implementer of some of the rule engines, is that experience really helped you in setting some of the things here, setting the stage here ?

No. I will be very, very emphatic about this. Project Cyclops is a ground up, natively designed machine. What exists in Project Cyclops does not, to as far as my knowledge, does not exist in many large organizations. So, the philosophy of building those scorecards, the philosophy of ensembling those scorecards, the philosophy of fast response from the scorecards using streaming data is something which has been probably built in the country for the first time. And to pull data from seven, eight disparate sources, make sense of it, manage latency and deliver an experience to the person at the dealer point in an acceptable time frame is really the challenge of Project Cyclops. And what Ramesh said, Project Cyclops does not blink. And I will tell you this, Project Cyclops is a large machine now. In the last 15 months that Project Cyclops has operated, it has not had a single day of downtime. It probably has not had even 10 minutes of downtime. It is so robustly built. So, I would say, it does not exist in any large organization.

Sure. Thanks.

Hi, my name is Vipul Shah. I am an individual investor. I just want to know what is, what does it cost to build all these three platforms and what will be the cost going forward every year.

Yes, the cost of building, I mean, the amount that we have spent till date on Project Cyclops and Project Nostradamus put together is about Rs. 60 odd crores, but it is still a work in progress. So, Project Nostradamus is still in the making. We are just one particular business which has been implemented. So, this will increase further. But at this point of time, what we have actually capitalized is about Rs. 60 odd crores. Sorry, you had something more? Next year, see, out of this Rs. 60, about Rs. 35 to Rs. 40 crores have been spent on Project Cyclops. The balance 20 has been to build Project Nostradamus. This will further. So, next year we will have to figure out because it is a combination of time being spent by various engineers to actually build. As Sudipta was mentioning, it has been built in-house. So, it will, it is basically the time that we are spending on building this. So, the cost of, the employee cost, all these engineers are working around the clock. So, it depends on the time frame required to go through that implementation is what we will do. Significant amount of work has gone into this. W e just do not count that. So, it took flat four months to implement Project Cyclops and it was done through the shifts. So, it was not that it was a nine to five kind of thing. People worked in shifts to deliver it so fast. Otherwise, it would have taken at least about a year or so. Probably it would have taken more.

Yes. Thank you, sirs. With this, thank you, sirs, for the detailed discussion and clarification provided. With this, ladies and gentlemen, we come to the end of this Investor Digital Day. On behalf of L&T Finance, I thank you again for spending your valuable time. For any further clarifications, request to contact the investor relations team. Thank you very much. And please, the tag that you're wearing, the access code that you have is valid for RAISE 25 tomorrow also. So, please do visit us. There will be more stalls here coming by for RAISE 25. There will be interesting speakers coming here for RAISE 25 tomorrow, which is our A I tech conference. So, please be there tomorrow and attend it as well. With this, ladies and gentlemen, thank you very much .

I know it's late, but there are demo stalls of Project Cyclops, Project Nostradamus, as well as Helios and, B owl Like Bumrah in that side. So, in case any one of you have time, I would urge you to spend some time there and get a hands-on feel of, what some of the solutions are. Our teams are waiting out on the demo area. The demo area will also be available tomorrow as well for RAISE. Thank you so much and thank you for coming and attending our Digital Investor Day. On behalf of L&T Finance, I'd like to thank all of you for a patient hearing and we hope to see you again next year. *Since the transcript has been derived from a voice recording tool, necessary corrections have been made to remove anomalies as well as manifest but inconsequential factual discrepancies, repetitions in Q&A which would have unintentionally crept in, if any