CSL Finance

CSL Finance reported a varied performance in FY26, with strong growth in its wholesale segment contrasting with an 'underwhelming' SME retail performance. For Q4 FY26, AUM grew 21% year-on-year to Rs. 1,448 crore, with the loan book also expanding by 21% to Rs. 1,395 crore. Full-year PAT increased by 19% over FY25 to Rs. 86 crore, and ROE improved to 14.81% from 13.31% in FY25, reflecting an improved return profile of the equity base.

The company's AUM mix has shifted significantly towards wholesale, now comprising 69% of the total, with SME retail at 31%. Total disbursements in Q4 FY26 were Rs. 301 crore, a 5% increase year-on-year but a 16% sequential decline from elevated Q3 levels, primarily due to the lumpy nature of wholesale activity. Cumulative disbursements for FY26 reached Rs. 1,255 crore, up 12% over FY25, with collection efficiency consistently at 98% across all quarters.

Asset quality saw some deterioration in Q4 FY26, with Gross NPA rising to 1.1% from 0.46% in Q4 FY25, and Net NPA increasing to 0.81% from 0.34%. This was partly attributed to lower NPA resolutions and revised RBI provisioning norms for project financing, which increased from 0.8% to 0.98%. However, management expressed confidence in faster resolutions for SARFAESI-compliant books and the quality of fresh underwriting in the SME retail segment over the past 12 months, with no material delinquencies.

Net Interest Income (NII) for Q4 FY26 grew 21% year-on-year and 10% sequentially to Rs. 45.4 crore, driven by higher average AUM. For the full year, NII increased by 15% to Rs. 168 crore. Profit After Tax (PAT) for Q4 FY26 was Rs. 19.4 crore, up 2% year-on-year but down 7% sequentially, primarily due to higher total ECL provisions and write-offs during the quarter. Profit Before Tax (PBT) for Q4 stood at Rs. 30.18 crore, up 21% YoY and 18% sequentially.

CSL Finance operates 44 branches across 7 states, with a focus on optimizing existing locations rather than aggressive expansion in the near term. The company successfully on-boarded Bank of Baroda as a new lender and concluded a Rs. 30 crore NCD issue, diversifying its funding pool. Liquidity remains healthy at Rs. 110.4 crore, and the leverage ratio is comfortable at 1.39x, providing headroom for growth in FY27. The credit rating was reaffirmed at A- Stable by Acuité Ratings.

The SME retail segment faced significant challenges in FY26, including an over-leveraged borrow profile, stagnant income growth, and increased competitive intensity. Management noted that aggressive run-downs and takeovers of existing good cases nullified disbursements. The strategy for FY27 involves consolidating existing branches, improving productivity, and focusing on higher-quality customers with better CIBIL history and collateral, with new branch openings planned only from Q3 FY27.

The wholesale segment continues to be a key growth driver, with management highlighting an increased focus on off-book AUM through joint lending structures with banks and NBFCs. This strategy aims to generate fee-based income, mitigate risk, acquire more customers, and expand regional footprint. The company is selective in co-lending, typically for requirements above Rs. 30-40 crores, and maintains a stake of 10-40% in such transactions.