CSL Finance — Q2 FY26 earnings call

Call held 14 Nov 2025

Management summary

CSL Finance reported a strong Q2 FY26, with AUM growing 29% YoY to Rs. 1,397 crores, driven by a significant revival in SME retail disbursements. Profitability metrics like PAT and PBT showed robust growth, while asset quality improved with lower NPS figures and high recovery rates. The company is cautiously optimistic, focusing on disciplined growth in SME retail, branch expansion, and operational efficiencies, despite broader industry challenges and some NIM compression.

Highlights

  • AUM reached Rs. 1,397 crores in Q2 FY26, representing a healthy 29% YoY growth and an 8% sequential increase.

  • SME retail disbursements saw a significant upturn, growing 93% YoY and 61% sequentially, indicating early success of corrective measures.

  • PAT for Q2 FY26 was Rs. 24.5 crore, up 37% YoY and 15% QoQ, driven by improved operational performance.

  • Asset quality showed steady improvement with Gross NPS at 0.51% and Net NPS at 0.39% in Q2 FY26, with strong recovery rates for past write-offs (95% for 2021-22, >90% for 2023-24).

  • Cost of fresh borrowings reduced by approximately 60 to 70 basis points, with over 50% of existing borrowings already repriced.

Concerns

  • Overall disbursements saw a moderate 4% sequential decline in Q2 FY26, despite SME retail growth.

  • The broader industry still faces challenges such as over-leveraged borrower profiles and muted income growth in the MSME ecosystem.

  • NIM compression was observed in Q2 FY26, partly due to negative carry from surplus liquidity and lumpy wholesale business costs.

Key financials

  1. AUM ₹1,397 Cr +29%YoY
  2. Gross NPS 51% -8.9%QoQ
  3. Net NPS 39% -7.1%QoQ
  4. Net Interest Income ₹14.9 Cr +10%YoY
  5. PAT ₹24.5 Cr +37%YoY
  6. PBT ₹28.85 Cr +17%YoY

What they filed

Q1 FY27: revenue up 18.6%, net profit up 4.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue54 53 57 59 64 +19%64 +21%69 +21%70 +19%
Net profit18 17 19 21 24 +33%21 +24%19 +0%22 +5%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Undrawn ₹35 Cr Balance sheet liquidity of Rs. 111.5 crore also available.
    Our liquidity position remains strong with Rs. 111.5 crore of balance sheet liquidity and undrawn credit lines of around Rs. 35 crore.

Guidance & targets

AUM

  • Overall AUM AUM · FY26 · High confidence Rs. 1,500 to Rs. 1,600 crore
    We intend to build on this momentum in the second half, targeting an overall AUM in the range of Rs 1,500 to Rs 1,600 crore by year-end.

    — Rachita Gupta

  • SME AUM as % of total AUM AUM · FY27 · High confidence 45%

    From 35%-36% today

    from roughly around 35%-36% we are targeting by end of FY'27 we should be able to do 45% of the SME at least.

    — Management

  • SME AUM AUM · Next financial year (FY27) · Medium confidence Rs. 750 crores to Rs. 800 crores
    targeting to open 10 to 15 branches in next financial year itself, I think that leaves a pathway to achieve that AUM that we are projecting or that we are commenting on, that is Rs.750 crores to Rs. 800 odd crores of SME kind of AUM.

    — Management

Branch Network

  • Number of branches Branch Network · FY26 · High confidence 50 in coming quarters, 60 by year-end

    From 45 today

    currently at 45 we are planning to increase it to 50 in the coming quarters itself and by year end it could be around 60 odd numbers.

    — Chandan Kumar

Disbursement

  • Per branch disbursement (SME) Disbursement · Ongoing · High confidence Rs. 50 lakh

    From Rs. 35 lakh today

    we are able to achieve per branch disbursement from like Rs. 25 lakh which was earlier Rs. 25 lakh to Rs. 35 lakh average disbursement per branch and we are targeting to increase up to Rs. 50 lakh per branch disbursement

    — Chandan Kumar

Profitability

  • NIMS Profitability · Going forward · Medium confidence same or a little better
    more or less, our NIMS should be same or a little better going forward.

    — Management

Cost of Funds

  • Effective cost of borrowing Cost of Funds · Coming quarters · Medium confidence around 10.3, 10%

    From 10.9% today

    our effective cost which was 10.9% six to nine months back... It may come down to around 10.3, 10 around that target only.

    — Management

Lending Rates

  • Weighted average IR (Advances) Lending Rates · Ongoing · High confidence 18%, 18.25%
    No. We are saying our weighted IR will remain at 18%, 18.25%. It is only that we have introduced one product which will not be more than 15% to 20% of that. And that will have a weighted IR of around 16%. But certain, we do even in 22% to 24% also. So our weighted IR will remain.

    — Management

Operational Efficiency

  • Disbursement turnaround time (SME) Operational Efficiency · Ongoing · High confidence 7 to 15 days
    we are targeting that we would be disbursing any files, like log-in to disbursal for a ticket size of around Rs. 20 lakh or Rs. 25 lakh files in 7 to 15 days itself.

    — Management

What to watch in Q3 FY26

Overall AUM Growth

by year-end (FY26)
Current Rs. 1,397 crores (Q2 FY26)
Target Rs. 1,500 to Rs. 1,600 crore

Why it matters

This is the core growth metric and indicates the company's ability to achieve its stated full-year target.

We intend to build on this momentum in the second half, targeting an overall AUM in the range of Rs 1,500 to Rs 1,600 crore by year-end.

Risks & concerns

  • Broader industry challenges in MSME ecosystem

    medium

    Over-leveraged borrower profiles, muted income growth, and cautious lending practices persist across the sector.

    Management acknowledged

  • Competition in SME segment

    medium

    Increased competition from smaller NBFCs and MFIs shifting to secured micro-lending, particularly in the lower ticket size segment.

    Analyst acknowledged

  • Negative carry from surplus liquidity

    low

    Bunching of disbursements at quarter-end leads to carrying surplus liquidity, impacting overall earnings by 0.25%-0.4%.

    Management proactive in mitigation

Q&A highlights

8 direct
Sustainability of MSME disbursement growth and future AUM targets Direct
we are very much looking after growing our SME book and the numbers have grown considerably and we are able to achieve per branch disbursement from like Rs. 25 lakh which was earlier Rs. 25 lakh to Rs. 35 lakh average disbursement per branch and we are targeting to increase up to Rs. 50 lakh per branch disbursement and with the number proposed that in the coming quarters we are going to increase our branch network also. That is currently at 45 we are planning to increase it to 50 in the coming quarters itself and by year end it could be around 60 odd numbers.

Clarifies the strategic focus and numerical targets for SME growth and overall AUM expansion.

Asked by Pankaj from Molecule Venture

Impact of rate cuts on NIMS and customer pass-through Direct
our effective cost which was 10.9% six to nine months back... It may come down to around 10.3, 10 around that target only. So, with respect to retail there is no such demand to pass on... So, on wholesale, on totality, our NIMS will improve on the basis as we see the reduction in our cost of borrowing.

Provides insight into the company's margin outlook and competitive strategy regarding interest rates.

Asked by Pankaj from Molecule Venture

Changes in SME retail disbursement process, customer profile, ticket size, and rates Direct
We have simplified the processes and made SOPs and made everything very much purpose driven... the range and the ticket size and the target size of our customer has been increased... we have got an opportunity to increase the target customer benchmark from 16% to kind of 22% ROI customers. So, we would be able to get good customers at lower ROI

Explains the operational and strategic adjustments made to improve SME retail business performance and credit quality.

Asked by Pankaj from Molecule Venture

Operating leverage from branch productivity improvement Direct
operating leverage starts playing a role when a particular level of AUM has been achieved... Definitely post that we will be able to squeeze in as operating leverage has started to play in. and we would be able to reduce our operating cost as well.

Addresses the path to improved cost efficiency and profitability as the business scales.

Asked by Swanil Desai from Turtle Capital

Write-off cycle and recovery outlook Direct
If you see our history, what we have written off in 2021-2022, we have recovered 95% of that... our portfolio being secured, our recovery is good... our recovery historically from SARFAESI cases has been very strong.

Provides confidence in the company's asset quality management and future credit cost trajectory.

Asked by Swanil Desai from Turtle Capital

NIM compression explanation and future outlook Direct
one problem which we are facing... is that most of the disbursements happen in the last week of the quarter. And we have to carry a negative carry... That also takes about 0.25% to 0.4% of our overall earnings for that quarter... more or less, our NIMS should be same or a little better going forward.

Explains the reasons behind current NIM compression and management's expectation for future margin stability or improvement.

Asked by Nirvana from Badrinath Holdings

Foreclosure rates in Rajasthan and Gujarat and branch realignment Direct
the foreclosure from these two particular regions are little higher vis-a-vis North 1 and North 2 portfolio... some branches were realigned not closed. The reason being, the business of those older branches has been mapped. The reason being, we are finding those branches less cost-efficient

Offers insight into regional asset quality challenges and the company's strategy to optimize its branch network.

Asked by Nirvana from Badrinath Holdings

Readiness for ambitious SME growth targets (40-45% CAGR) Direct
now from last eight to ten months we believe in ourselves that we are system ready, infrastructure wise we are ready, human resource wise we are very much ready and that is why we have started taking a leap to grow our book with that pace itself

Addresses concerns about the company's capacity and preparedness to execute its aggressive SME growth strategy.

Asked by Nirvana from Badrinath Holdings

3 min read 7 chapters

Detailed narrative

Q2 FY26 Financial Performance Highlights

CSL Finance reported a robust Q2 FY26, with Assets Under Management (AUM) reaching Rs. 1,397 crores, marking a 29% year-on-year growth and an 8% sequential increase. Net Interest Income (NII) stood at Rs. 14.9 crore, up 10% YoY and 2% QoQ. Profit After Tax (PAT) surged by 37% YoY and 15% QoQ to Rs. 24.5 crore, while Profit Before Tax (PBT) grew 17% YoY and 5% QoQ to Rs. 28.85 crore. The company's asset quality showed improvement, with Gross NPS at 0.51% and Net NPS at 0.39%.

SME Retail Segment Revival and Strategic Focus

The SME retail business demonstrated visible progress in Q2 FY26, with disbursements growing significantly by 93% YoY and 61% sequentially, albeit on a smaller base. This upturn is attributed to corrective measures, including refining credit policies, optimizing product portfolio, strengthening underwriting processes, and restructuring teams. Management views this as an early sign of success, aiming to drive responsible growth in this segment while maintaining asset quality. The company targets an SME AUM of Rs. 750-800 crores by next financial year and 45% of total AUM by end of FY27.

Asset Quality and Recovery Trends

CSL Finance reported a steady improvement in asset quality, with write-offs moderating and recoveries picking up. Gross NPS decreased to 0.51% in Q2 FY26 from 0.56% in Q1 FY26, and Net NPS improved to 0.39% from 0.42%. Historically, recovery rates for written-off assets have been strong, with 95% for 2021-22, 75% for 2022-23, and over 90% for 2023-24 write-offs, largely due to the secured nature of the portfolio and SARFAESI processes. The company expects this positive recovery trend to continue.

Funding, Liquidity, and Cost of Borrowing

The company maintains a strong liquidity position with Rs. 111.5 crore of balance sheet liquidity and Rs. 35 crore in undrawn credit lines. CSL Finance has observed benefits from recent rate cuts, with the cost of fresh borrowings reducing by 60-70 basis points since the start of the year. Over 50% of existing borrowings have already been repriced, with the remaining 50% expected to follow. The effective cost of borrowing, which was 10.9% six to nine months back, is targeted to come down to around 10.3-10%.

Branch Network Expansion and Operational Efficiency

CSL Finance is expanding its distribution and funding base, adding two new branches and several spoke locations in Q2. The current branch network of 45 is planned to increase to 50 in coming quarters and around 60 by year-end. The company aims to increase per-branch disbursement from the current Rs. 35 lakh to Rs. 50 lakh. Operational processes have been simplified, and SOPs implemented, leading to higher active accounts and a target disbursement turnaround time of 7-15 days for Rs. 20-25 lakh files.

NIM and Yield on Advances Outlook

The company's Net Interest Margin (NIM) saw some compression in Q2 FY26, partly attributed to negative carry from surplus liquidity due to disbursement bunching and lumpy wholesale business costs. Management expects NIMs to be 'same or a little better' going forward. The weighted average interest rate (IR) on advances is projected to remain stable at 18-18.25%, despite the introduction of a new product with a slightly lower IR of around 16% for a smaller portion of the portfolio.

Addressing Regional Performance and Competition

While overall growth is positive, AUM in Rajasthan and Gujarat remained flat, which management attributes to higher foreclosure rates in these regions due to intense competition from smaller NBFCs. Some less cost-efficient branches were realigned. The company acknowledges the competitive landscape, particularly with MFIs shifting to secured micro-lending, but believes its focus on service delivery, faster processing, and robust internal processes provides a competitive edge.

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