India Shelter Finance Corporation Limited — Q1 FY26 earnings call

Call held 13 Aug 2025

Management summary

India Shelter Finance Corporation reported robust Q1 FY26 results, driven by strong AUM and PAT growth, improved profitability metrics like ROE and ROA, and reduced cost of funds. The company expanded its branch network and advanced technology initiatives. However, management acknowledged some softness in consumer demand and an uptick in DPD 30-plus and Stage 3 assets, attributing it to seasonal and macroeconomic factors, particularly in certain geographies like MP and Karnataka, which are actively being addressed.

Highlights

  • AUM grew 34% year-on-year to ₹8,712 crores, demonstrating strong operational performance.

  • PAT increased by 43% year-on-year and 10% quarter-on-quarter to ₹119 crores.

  • Return on Equity (ROE) improved to 17.2%, crossing 17% for the first time post listing.

  • Bucket cost of funds reduced by 10 basis points quarter-on-quarter to 8.6%, driven by lower marginal cost of funds.

  • Lending margins increased by 20 basis points to 6.4%, consistently above 6%.

Concerns

  • Several consumer demand indicators showed softness, including UPI transaction volumes, passenger vehicle sales, and two-wheeler registrations.

  • DPD 30-plus bucket increased by 100 basis points, attributed partially to seasonality and broader macro factors.

  • Stage 3 assets increased to 1.2%, up by 10 basis points year-on-year.

Key financials

  1. AUM ₹8,712 Cr +34%YoY
  2. Disbursement ₹887 Cr +24%YoY
  3. PAT ₹119 Cr +43%YoY
  4. ROE 17.2%
  5. ROA 6% +0.2%QoQ
  6. Cost of Funds (bucket) 8.6% -0.1%QoQ
  7. NIM 9%
  8. Opex to AUM 4.2%
  9. Stage 3 1.2% +0.1%YoY
  10. Credit Cost 0.5%

What they filed

Q1 FY27: revenue up 19.7%, net profit up 20.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue282 304 327 361 369 +31%390 +28%411 +26%432 +20%
Net profit90 96 108 119 122 +36%124 +29%140 +30%143 +20%
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 ₹560 Cr Comfortably placed with liquidity of Rs. 650 crores plus and undrawn sanction of Rs. 560 crores.
    On liquidity side, we are comfortably placed with a liquidity of Rs. 650 crores plus and undrawn sanction of Rs. 560 crores.

Guidance & targets

Branch Expansion

  • Branch Addition Branch Expansion · for the year · High confidence 40 to 45
    Branch addition of around 40 to 45 for the year

    — Rupinder Singh

Profitability

  • Spreads Profitability · medium term · High confidence more than 6%
    Maintain spreads of more than 6% in the medium term

    — Rupinder Singh

  • ROE Profitability · by FY28 · Medium confidence 18%
    by like FY28 down the line three years from here, we will start touching a leverage of about 4x. At that point of time, ROA will be about 4.5% that briefly results into ROE of about 18%.

    — Ashish Gupta

Asset Quality

  • Credit Cost Asset Quality · High confidence 40 to 50 bps
    Credit cost of around 40 to 50 bps

    — Rupinder Singh

  • DPD 30+ Asset Quality · this financial year · Medium confidence 3.2%, 3.3%
    We feel that this number is going to come and sustain around 3.2%, 3.3% as we close this financial year.

    — Rupinder Singh

Credit Growth

  • Loan Growth Credit Growth · High confidence 30%, 35%
    Loan growth of around 30%, 35%

    — Rupinder Singh

Cost of Funds

  • Cost of Funds Reduction Cost of Funds · by the year-end · High confidence another 20 bps
    we expect another 20 bps cut by the year-end.

    — Ashish Gupta

Capital Adequacy

  • Capital Adequacy Ratio Capital Adequacy · after FY28 closure · Medium confidence 4.5x leverage
    we feel we should be back in market somewhere after financial year '28 closure for the next round. That's what we look forward. Once you are at a 4.5x leverage, I think you are good to go is what our understanding is.

    — Rupinder Singh

Portfolio Mix

  • HL LAP Ratio Portfolio Mix · going forward · High confidence 60-40
    On the HL LAP ratio query of yours, so, at the LAP ratio, we want to maintain a split of 60-40 that is going to be our trend going forward.

    — Rupinder Singh

  • Variable/Semi-Variable Asset Mix Portfolio Mix · two year down the line · Medium confidence 65%
    So, two year down the line, we have an aspiration to have 65% of our total assets are linked to variable or semi-variable rate and remaining 35% get funded by a fixed rate or equity.

    — Ashish Gupta

Operational Efficiency

  • Employee Productivity Improvement Operational Efficiency · every year · Medium confidence 10%
    So, we try to improve every year by 10% at least.

    — Rupinder Singh

What to watch in Q2 FY26

Cost of Funds Reduction

By year-end (FY26)
Current Down 10 bps QoQ to 8.6%
Target Another 20 bps cut

Why it matters

Directly impacts Net Interest Margin (NIM) and overall profitability.

Our bucket cost of fund is further down by 10 basis points in Q1 to 8.6%, driven by lower marginal cost of funds and reset of our borrowing linked to repo rate... and we expect another 20 bps cut by the year-end.

Risks & concerns

  • Softness in consumer demand indicators

    medium

    Slowdown in UPI transaction volumes, contraction in passenger vehicle sales, and decreasing two-wheeler registrations, coupled with subdued urban wage growth.

    Management acknowledged

  • Asset quality deterioration (DPD 30+ and Stage 3 rise)

    medium

    DPD 30-plus increased by 100 bps, and Stage 3 assets rose to 1.2%, attributed to seasonality, macroeconomic factors, and specific state-level issues (e.g., MP, Karnataka).

    Both acknowledged

  • SME market stress

    low

    General market noise about SME stress, but management believes their collateral-backed LAP product on self-occupied residential property mitigates this risk.

    Both downplayed

Q&A highlights

8 direct
Borrowing mix, re-pricing, and PLR cuts Direct
To start with the borrowing mix, 90% of our borrowings are linked to variable rate. And if you look at within the variable rate, about 35% of the borrowings are linked to repo rate, wherein we have already seen the benefit of repo rate cut. And then remaining variable rate-linked borrowings are linked to banks MCLR... we will hold back till Q3. Once we have a reasonable cost of fund reduction, we will think of passing on the rate reduction to our customers. But having said this, it is worthwhile to note that out of the total loan assets that we have only 15% are linked to the variable rate then remaining 85% is fixed rate or semi-fixed rate, wherein the loan rates are fixed for initial 3 years, then it will become variable.

Clarifies the company's borrowing structure, strategy for passing on interest rate benefits, and the limited impact of rate cuts on the overall loan book due to fixed-rate dominance.

Asked by Varun from Kotak Securities

DPD 30+ bucket and credit cost guidance Direct
So, we are going to maintain our projection on 40 bps to 50 bps when we talk about credit cost. July month in terms of 30 DPD looks almost same number what was is in quarter one. So, they may be 2 bps lower, but not upper side. Since there's 2 months for this quarter left, I think giving exact number will be a little difficult. But what we see that as the time progress; we're also strengthening ourselves accordingly. This should not be a challenge. So, we are giving the same guidance of 40 to 50 bps of credit cost for the year.

Reaffirms credit cost guidance despite a rise in DPD 30+, indicating confidence in managing delinquencies and recoveries.

Asked by Soumil Jain from Lucky Investments

Asset quality stress in LAP segment Direct
Basically, on Stage 3 side, we don't see difference between LAP and HL. The number remains same between the two. But yes, on 30-plus side, LAP is a little higher than the HL. If we are at 4.5% of 30 plus, then you can assume that HL is 30 to 40 bps lower than 4.5% and LAP is around 30 bps higher than 4.5%. These are the normal trends, what we can see that. Beauty of this product is since LTVs are low, we are maintaining LTVs around 45% to 47%.

Provides a detailed breakdown of asset quality trends between LAP and Home Loans, highlighting the role of low LTVs and collateral in mitigating risk for LAP.

Asked by Shubhranshu Mishra from Phillip Capital

Competition and underwriting quality in the industry Direct
Market is enormous as we keep saying that and we are still too small as a player to feel the heat of that large competition of the bigger players around that side. We have stated our own niche, targeting this Tier 3, Tier 2 market. We believe our productivity numbers are yet to get further improved and we are working on that side. And when we go to market to source our customers, we don't find some kind of undercutting or customer pressure to get moving from one point to other point in terms of what happens in the larger or prime ticket size.

Explains the company's strategy of focusing on a niche market (Tier 2/3) to avoid intense competition and maintain underwriting quality, despite broader industry concerns.

Asked by Varun Bang from Bandhan Life Insurance

Asset mix split (fixed, variable, semi-variable) Direct
So, in terms of overall asset profile, about 15% of the portfolio is variable rate. Then about 30% of the portfolio is semi-variable kind of rate, wherein initial three years is fixed. So, we started this product about 18 months back. So still 18 months of fixed rate journey is left in those loans. And then remaining 55% is completely fixed.

Provides a clear breakdown of the company's loan portfolio by interest rate type, which is crucial for understanding interest rate sensitivity and NIM outlook.

Asked by Umang Shah from Kotak Mahindra AMC

Long-term view on DPD 30+ and Stage 2 numbers Direct
We should not allow as a team overlooking the businesses, we should always look for the positive things. But directionally, what you are thinking looks practical when we see in the market. Our prerogative is not to allow this. Our prerogative is always to keep pushing and reducing it as far as possible. We'll use further tools which are available today and how to make sure that others can also improve around that side. So, allowance is not there, but on your thinking I largely eco with that.

Management acknowledges the analyst's view on a potentially higher 'normalized' DPD 30+ and Stage 2 for their business model, while committing to continuous efforts for reduction.

Asked by Umang Shah from Kotak Mahindra AMC

Geographic stress in MP, Karnataka, UP, and Tamil Nadu Direct
MP is definitely; we are trying to resolve it as early as possible. Though it has not shoot up beyond that peak, it is around that side, little uptick definitely in month of quarter 1, but we are hopeful that things should come up... About UP and Tamil Nadu, UP, in fact, we have one of the lowest delinquencies across country among all the states. Yes, book is new... TN, a slight uptick is there, but things look largely under control as we see going forward.

Provides a state-by-state update on asset quality, identifying specific areas of concern (MP) and resilience (UP), and management's actions.

Asked by Shweta from Elara

SME stress and collateral strategy Direct
SME has largely been divided into two set of customers. One is SME where a lot of unsecured loans being given and maybe quasi loans have been given with some path of mortgage, some may not be, something like that. We have only two products, which is loan against property and home loan. In both of the categories, we make sure that collateral is very intact and has been given to SME particularly. When we have seen a spike going up, we also realize the spike between the two, which is HL and LAP, is not much of difference.

Clarifies the company's approach to SME lending, emphasizing collateral-backed loans to mitigate risks associated with broader SME stress.

Asked by Sakshi Goenka

3 min read 7 chapters

Detailed narrative

Macroeconomic and Sectoral Outlook

Management noted a mixed macroeconomic environment, with softness in consumer demand indicators like UPI transaction volumes, passenger vehicle sales, and two-wheeler registrations. Urban wage growth remained subdued. However, rural India showed resilience due to a successful Rabi harvest and timely monsoon, boosting cash flows and consumption. Headline CPI inflation eased to a six-year low of 2.1% in June 2025, providing a stable backdrop. The affordable housing finance loan portfolio is projected to grow at a CAGR of 20-22% to ₹2.5 lakh crores by FY28.

Strong Operational and Financial Performance

India Shelter delivered robust Q1 FY26 results, with Assets Under Management (AUM) growing 34% year-on-year to ₹8,712 crores and disbursements increasing 24% year-on-year to ₹887 crores. Profit After Tax (PAT) surged 43% year-on-year and 10% quarter-on-quarter to ₹119 crores. Return on Equity (ROE) improved to 17.2%, and Return on Assets (ROA) was 6%, up 20 basis points quarter-on-quarter. The company expanded its geographic presence by adding 24 new branches, reaching a total of 290 branches.

Improved Profitability and Cost Management

The company successfully reduced its bucket cost of funds by 10 basis points quarter-on-quarter to 8.6%, with the marginal cost of funds at 8.5%, down 30 basis points year-on-year. This led to a 20 basis points improvement in lending margins, reaching 6.4%, consistently above the 6% guidance. Net Interest Margin (NIM) remained stable at 9% year-on-year. Operating expenses to AUM improved to 4.2%, down 20 basis points year-on-year, reflecting better cost ratios.

Asset Quality and Credit Cost Trends

Stage 3 assets stood at 1.2%, an increase of 10 basis points year-on-year, while net Stage 3 assets remained stable at 0.9%. The provision coverage ratio for Stage 3 assets was stable at 25%. Credit cost for the quarter was 0.5%, in line with the medium-term guidance of 40-50 basis points. Management acknowledged an increase in DPD 30-plus by 100 basis points, attributing it to seasonality and broader macroeconomic factors, but expects stabilization around 3.2-3.3% by FY26 end.

Technology and Operational Efficiency Initiatives

India Shelter continued to enhance its technological capabilities, implementing Aadhar-based instant e-KYC for faster onboarding and fraud prevention. They also deployed machine learning-based credit origination scorecards to analyze financial behavior, digital payments, and non-traditional data for improved risk assessment. These initiatives aim to automate key processes, enhance customer experience, and make credit decisions faster and fairer. Management targets a 10% annual improvement in employee productivity.

Borrowing and Asset Mix Strategy

The company's borrowing mix is 90% variable rate, with 35% linked to the repo rate and 65% to MCLR. They anticipate another 20 basis points reduction in the cost of funds by year-end. On the asset side, 15% of the portfolio is variable rate, 30% is semi-variable (fixed for initial three years), and 55% is completely fixed. The long-term aspiration is to have 65% of total assets linked to variable or semi-variable rates and 35% funded by fixed rate or equity within two years.

Geographic and Segmental Focus

The company maintains a strategic focus on Tier 2 and Tier 3 markets. While specific states like MP and Karnataka have shown some asset quality stress, management is actively working on resolution, with Karnataka showing signs of settling. Uttar Pradesh exhibits some of the lowest delinquencies across states, while Tamil Nadu has a slight but controlled uptick. The Home Loan (HL) to Loan Against Property (LAP) ratio is targeted to be maintained at 60:40, with LAP primarily secured by self-occupied residential properties with low LTVs of 45-47%.

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