30-Oct-2026 18:46:23
INDOSTAR CAPITAL FINANCE Q2 CONCALL: TARGETS 35% DISBURSEMENT CAGR OVER 3 YEARS, ₹450–500 CR PAT BY FY29; EXPECTS CREDIT COST TO FALL TO 2–2.5% IN FY28 & TARGETS 2% ROA FROM H2 FY28
• Disbursement Growth Guidance: Management reiterated its target of 35% CAGR in disbursements over three years, supported by vehicle finance expansion, branch productivity and Micro LAP growth. • FY29 Profit Guidance: Management maintained its target of achieving ₹450–500 Cr PAT by FY29, supported by higher AUM, improving asset quality and lower credit costs. • FY28 Credit Cost Guidance: Management expects normalized credit costs of approximately 2–2.5% in FY28, significantly below the elevated levels seen in FY27. • H2 FY27 Credit Cost Outlook: Management expects provisioning requirements to decline, with a significant reduction beginning from Q4 FY27 as the stressed legacy portfolio runs down. • ROA Guidance: Management targets approximately 2% return on assets from H2 FY28, compared with around 0.5% currently. • AUM Growth Outlook: Management expects AUM growth to progressively converge with disbursement growth as legacy loan write-offs and portfolio runoff moderate. • Medium-Term AUM Growth: Management expressed confidence in achieving 18–20%+ AUM growth as the contribution from newer originations increases. • Branch Expansion Guidance: Management reiterated plans to add approximately 100 branches over three years, focusing primarily on improving productivity from its existing network. • Branch Network: Total branches increased to 475 from 454 over the last two quarters. • Vehicle Finance Sales Expansion: Field sales personnel increased approximately 51% over the past year, from 1,235 to 1,868, with further hiring planned. • Vehicle Finance Growth Strategy: Management has strengthened dedicated sales teams for commercial vehicles, passenger vehicles, farm equipment and construction equipment. • Portfolio Diversification Target: Management intends to avoid excessive concentration in individual lending segments, generally targeting a maximum contribution of approximately 35–40% from any segment. • Passenger Vehicle Growth: Passenger vehicle disbursements increased approximately 75% over the past year, supported by improved underwriting and faster loan processing. • Vehicle Finance Portfolio Mix: Passenger vehicle disbursement share increased to 31% from 23% YoY, while medium and heavy commercial vehicle share declined to 27% from 31%. • Micro LAP Growth Outlook: Management expects the Micro LAP business to remain a major growth driver, supported by geographic expansion and higher average loan ticket sizes. • Micro LAP Contribution Target: Management aims to increase Micro LAP's share of the loan portfolio to approximately 10–15% over the next three years. • Micro LAP Branch Expansion: Business operates through 154 co-located branches across nine states and one union territory, compared with 71 branches across two states a year earlier. • Micro LAP Geographic Expansion: Company commenced operations in Bihar, Uttar Pradesh and West Bengal, with Karnataka and Madhya Pradesh launches planned during Q3–Q4 FY27. • Micro LAP Ticket Size Strategy: Management is gradually increasing average loan ticket sizes toward approximately ₹10 lakh, while maintaining conservative underwriting standards. • Micro LAP Lending Yield: Disbursement yields remain around 20%, excluding upfront processing fees, with management willing to accept slightly lower yields for better-quality larger-ticket borrowers. • Micro LAP Loan Security: Weighted average loan-to-value remains around 40%, with approximately 98% of the portfolio backed by residential properties. • Micro LAP Asset Quality: Approximately 99.6% of the portfolio remains current, while 90+ DPD delinquency stands at approximately 0.18%. • Micro LAP Distribution Channels: Connectors and direct selling agents now contribute approximately 20–25% of new business. • Legacy Loan Book Reduction: The share of vehicle finance loans originated before January 2025 declined to approximately 26% from 65% YoY. • Legacy Portfolio Outlook: Management expects the older, higher-risk portfolio to fall toward approximately 10% of AUM by FY27-end. • New Loan Book Target: Management reiterated its expectation that approximately 85% of the vehicle finance portfolio will consist of loans originated under the revised underwriting framework by Q4 FY27. • Customer Quality Improvement: Customers with CIBIL scores of 725 and above now account for approximately 85% of the portfolio, compared with 80% YoY. • New Disbursement Quality: Approximately 95% of recent borrowers have CIBIL scores of 700 or above, reflecting tighter customer selection. • Delinquency Improvement: Management indicated that 30+ DPD delinquency for the January–September 2026 origination cohort was approximately 71% lower than for the comparable 2024 cohort. • Early Delinquency Trend: Early delinquency remained stable at approximately 2.4%, while the non-starter ratio stood at 1.7%. • Collection Strategy: Company is strengthening collections through a dedicated team of approximately 400 personnel focused on higher-delinquency accounts. • AI-Based Underwriting: Company has introduced bureau-based credit scorecards and automated loan approval systems to improve underwriting accuracy and processing efficiency. • Straight-Through Processing: Automated processing rates reached approximately 74% in used-car financing and 68% in commercial vehicle financing. • AI Collection Systems: Management has deployed predictive delinquency models and AI-powered collection calling, with further automation planned over the next two quarters. • Borrowing Cost Outlook: Management expects its overall borrowing cost to decline further as older high-cost borrowings mature and are refinanced. • Cost of Funds: Weighted average borrowing cost declined to 9.7%, while incremental borrowing cost stood at approximately 9.1%. • Interest Rate Strategy: Management expects to pass on higher funding costs to borrowers where necessary, while refinancing existing expensive borrowings. • Borrowing Refinancing: Approximately ₹1,300 Cr of older borrowings carrying interest rates above 10.5% are scheduled to mature over the coming months, providing refinancing opportunities. • Direct Assignment Transaction: Company completed a ₹132 Cr direct assignment transaction involving its vehicle finance portfolio during Q2. • Capital Adequacy: Capital adequacy ratio stood at approximately 36%, providing headroom for future lending growth. • Liquidity Position: Company reported liquidity of approximately ₹827 Cr as of September 2026, with a comfortable asset-liability maturity profile. • Q2 Total Disbursements: Disbursements increased approximately 51% YoY to ₹1,399 Cr, compared with ₹1,235 Cr in Q1 FY27 and ₹927 Cr in Q2 FY26. • H1 Disbursements: Total retail disbursements stood at approximately ₹2,634 Cr during H1 FY27. • Total AUM: Assets under management stood at ₹8,459 Cr as of September 2026, with retail lending accounting for approximately 97% of the portfolio. • Vehicle Finance Performance: Q2 disbursements stood at ₹1,325 Cr, while vehicle finance AUM reached ₹7,923 Cr. • Micro LAP Performance: Disbursements increased 174% YoY to ₹74 Cr, while AUM increased 177% YoY to ₹280 Cr. • Consolidated Asset Quality: Gross Stage 3 assets improved to 4.5% from 4.8% QoQ, while net Stage 3 assets declined to 2.4% from 2.5%. • Vehicle Finance Asset Quality: Gross Stage 3 improved to 4.4% from 4.7% QoQ, while net Stage 3 improved to 2.4% from 2.5%. • Provision Overlay Reversal: Company released a ₹49 Cr precautionary management overlay created in Q4 FY26, after management concluded that the anticipated fuel-price-related stress had not materialized. • Q2 Credit Cost: Revised impairment and credit cost stood at approximately ₹96 Cr, compared with ₹81 Cr in Q1, despite the ₹49 Cr overlay release. • Provision Coverage: Overall expected credit loss provision as a percentage of the total book declined to approximately 4% from 5%. • Q2 Net Total Income: Net total income increased to ₹243 Cr from ₹190 Cr YoY. • Q2 Operating Profit: Pre-provision operating profit stood at approximately ₹109 Cr. • Q2 Net Profit: PAT increased to ₹13 Cr from ₹11 Cr YoY, while profitability remained affected by provisioning on the legacy portfolio. • H1 Financial Performance: Net total income stood at ₹465 Cr, while PAT reached approximately ₹25 Cr. • Stressed Asset Recovery Outlook: Management expects recoveries from retail security receipts over the next 12–18 months, while corporate portfolio recoveries are expected to begin within the previously indicated 18–24-month timeframe. • Key Challenges: Elevated provisioning on legacy loans, potential interest rate increases, rural demand volatility, portfolio seasoning risks in Micro LAP, execution of aggressive disbursement growth targets and the timing of asset quality normalization remain important factors.
INDOSTAR CAPITAL FIN LTD