SG Finserve Q2 FY26 earnings call

SG Finserve reported a robust Q2 FY26, with its loan book expanding by 15% quarter-on-quarter to INR 2,878 crores as of September 2025. This growth translated into a 14% increase in Profit Before Tax (PBT) and a 16% rise in net profit. However, due to a slowing macroeconomic environment and customers trimming revenue guidance, the full-year FY26 PAT guidance has been revised downwards to INR 120-125 crores from the earlier INR 150-160 crores. The company maintains its commitment to achieving 10-15% quarter-on-quarter EPS growth for the remaining quarters of FY26.

The company announced significant leadership changes, with current CEO Sorabh Dhawan and COO & CFO Sahil Sikka moving on to new opportunities. Mr. Vinay Gupta, a seasoned banker with over 20 years of experience, will take over as the new CEO in November, while Mr. Sanjay Rajput, who has been with the company for two years, will assume the role of Chief Financial Officer. Additionally, Mr. Saurabh Mishra has been appointed as Head of Internal Audit. Management emphasized that the transition is planned to be smooth, ensuring no disruption to business operations, and aims to leverage the new leadership's experience for continued growth.

SG Finserve continues to boast a zero Non-Performing Asset (NPA) record, having disbursed over INR 52,000 crores since its inception 36 months ago, primarily to India's top 50 corporates. The company's strategy prioritizes maintaining this robust asset quality, even if it means a cautious approach to growth in a challenging macro environment, avoiding aggressive expansion into higher-risk Tier 2/3 customer segments. The long-term goal is to grow the loan book from INR 2,800 crores to INR 5,000 crores in the next two to three years, supported by an additional equity infusion of INR 338 crores expected by April 2026.

The company's Net Interest Margin (NIM) saw a reduction from 12.4% in Q1 to 11.5% in Q2, attributed to a strategic decision to onboard large anchor clients like Tata Motors and Mahindra & Mahindra, which initially come with lower yields (around 11%). Management expects yields to improve to a steady state of 12.25-12.45% post-penetration. Furthermore, the cost-to-income ratio is targeted to decrease from approximately 70 basis points to 60 basis points, and then to 55 basis points over the next two financial years, driven by digital growth and stable leadership costs.

With a strong equity base of INR 1,071 crores and an anticipated additional INR 338 crores by April 2026, SG Finserve is well-capitalized to support its growth ambitions. The company aims to improve its Return on Equity (ROE) from the current 9% to above 15% as a first milestone, eventually targeting 18-19%. This will be achieved by increasing leverage from the current 1:2 to 1:3 and expanding NIMs through deeper penetration into the supply chain, particularly by funding retailers under existing distributors.

SG Finserve maintains a diversified exposure across three key industries: building materials (50-60% share, including Saint-Gobain, glass, tiles), automobile (Tata Motors, JSW, MG Motors, Ashok Leyland), and IT & peripherals (20% share, including OPPO, Redington, Ingram). The company plans to expand its reach digitally and deepen relationships with existing anchors, while also onboarding new industry leaders. The strategy includes moving one tier below to fund retailers, with risk mitigation through stop supply arrangements and First Loss Default Guarantees (FLDG) in coordination with anchors and distributors.