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    Indostar Capital

    INDOSTARMixed
    Financial Services·14 Aug 2025
    Management Summary

    Indostar Capital Finance reported a strong Q1 FY26 net profit of INR 535 crores, primarily due to a one-time gain from the divestiture of Niwas Housing Finance. While disbursements saw a temporary moderation to INR 858 crores due to tightened credit policies, AUM grew 9% YoY to INR 7,783 crores. The company demonstrated improved asset quality metrics post-write-offs and provisions, alongside a reduction in its cost of funds, positioning it for focused growth in vehicle finance and micro LAP.

    Highlights

    8
    • Net Profit for Q1 FY26 surged to INR 535 crores, significantly up from INR 12 crores in Q4 FY25 and INR 11 crores in Q1 FY25, driven by an exceptional gain from the divestiture of Niwas Housing Finance.

    • The company recognized a one-time post-tax gain of INR 1,007 crores from the divestiture of its 100% subsidiary, Niwas Housing Finance Private Limited.

    • Disbursements for Q1 FY26 were INR 858 crores, a decline from INR 1,081 crores in Q4 FY25 and INR 1,416 crores in Q1 FY25, attributed to proactive credit policy adjustments.

    • Assets Under Management (AUM) grew 9% year-on-year to INR 7,783 crores in Q1 FY26, despite a slight dip from the previous quarter due to write-offs.

    • Net Interest Income (NII) increased 10% year-on-year to INR 158 crores, with Net Interest Margin (NIM) improving to 6.2% from 6% in Q1 FY25.

    • Gross Stage 3 (GNPA) stood at 4.04% and Net Stage 3 (NNPA) at 1.68% in Q1 FY26, following a technical write-off of INR 161 crores and an incremental provision of INR 255 crores.

    • Capital Adequacy Ratio (CAR) remained strong at 32.7%, and the debt-to-equity ratio was 1.7x, providing ample headroom for growth.

    • The weighted average cost of borrowing reduced to 10.5% in Q1 FY26 from 10.8% in Q4 FY25, with incremental cost of borrowing in the range of 9.2% to 9.5%.

    What Changed3

    vs Q2 FY26

    Tone shiftGood → MixedGuidance items12 → 7 (-5)Risks discussed4 → 3 (-1)

    Key financials

    Single quarter

    10 metrics
    1. 01Net Profit₹535 Cr+47.6%YoY
    2. 02Disbursements₹858 Cr-39.4%YoY
    3. 03AUM₹7,783 Cr+8.5%YoY
    4. 04Net Interest Income₹158 Cr+9.7%YoY
    5. 05Net Interest Margin6.2%

    Guidance & targets

    7
    CategoryTargetPriority
    Disbursement
    Disbursement Growth
    15%
    High
    Cost Savings
    Annualized Operating Cost Savings
    8% to 10%
    Medium
    Profitability
    Cost-to-Income Ratio
    50% range
    Low
    Credit Growth
    AUM Growth
    12% to 15%
    Medium
    Credit Growth
    AUM Growth
    15%, 17%
    Medium
    Debt
    Higher Cost Debt Replacement
    INR 1,480 crores
    High
    Cost of Funds
    Cost of Borrowing Improvement
    20 to 25 basis points
    Medium

    Risks & concerns

    3
    RiskSeverity

    Challenging Operating Environment

    Policy tightening and usual softness in Q1 led to a short-term moderation in disbursement volumes, reflecting a challenging environment.Management acknowledged

    medium

    Collection Softness

    Proactive credit policy adjustments were undertaken in response to collection softness observed both within the company's portfolio and across peer industries.Management acknowledged

    medium

    Uncertainty in Security Receipt Recoveries

    An incremental provision of INR 255 crores was made on select security receipts where near-term recovery looks uncertain.Management acknowledged

    medium

    Q&A highlights

    3

    “On your earlier questions, on the policy refinement and essentially where we have written-off a significant amount, it is across a few profiles. One is, we have increased our CIBIL score requirement. One is we saw some softness in lower CIBIL scores, so we are now essentially trying a higher CIBIL score of 700-plus. We also saw softness in a few models, vehicle models in certain geographies.”

    This question directly addresses the trade-off between asset quality and growth, and management provides specific details on policy changes and their immediate impact on delinquencies.

    asked by Vivek Ramakrishnan

    3 min read6 chapters

    Detailed Narrative

    01

    Strategic Divestiture and Financial Impact

    Indostar Capital successfully completed the divestiture of its 100% subsidiary, Niwas Housing Finance Private Limited, on June 24, 2025. This transaction resulted in a significant one-time📎 gain of INR 1,176 crores (INR 1,007 crores post-tax) recognized in Q1 FY26. This exceptional gain📎 was the primary driver for the reported net profit of INR 535 crores for the quarter, a substantial increase from INR 12 crores in Q4 FY25 and INR 11 crores in Q1 FY25. The company will now operate as a focused NBFC with core segments in vehicle finance and micro loans against property.

    02

    Asset Quality Management and Provisions

    In Q1 FY26, Indostar revised its technical write-off policy to 200 days past due, leading to a write-off of INR 161 crores for loans exceeding this threshold. Additionally, an incremental provision of INR 255 crores was made for security receipts with uncertain near-term recoveries. These actions contributed to Gross Stage 3 (GNPA) standing at 4.04% and Net Stage 3 (NNPA) at 1.68%. Management emphasized that loans originated under the revised policy framework are showing significantly lower delinquency rates, tracking at nearly half the levels seen in the corresponding period last year.

    03

    Disbursement Trends and Growth Outlook

    Disbursements for Q1 FY26 were INR 858 crores, a decline from INR 1,081 crores in Q4 FY25 and INR 1,416 crores in Q1 FY25. This moderation was attributed to a conscious tightening of credit policy parameters in response to collection softness across the industry. However, management expects a rebound, targeting a 15% increase in disbursements for Q2 FY26. The company aims for AUM growth of 12% to 15% in FY26 and 15% to 17% in FY27, driven by targeting higher credit quality customers and expanding into new segments.

    04

    Cost of Funds and Profitability Enhancement

    The company continues to improve its borrowing profile, with the incremental cost of funds in Q1 FY26 at 9.2% to 9.5%, down from 9.7%-9.8% in the previous quarter. The weighted average cost of borrowing also reduced to 10.5% from 10.8% in Q4 FY25. Indostar replaced INR 870 crores of legacy high-cost debt (average 12%) with fresh borrowings at 9.5%, saving INR 21 crores annually. An additional INR 1,480 crores of higher cost debt is targeted for replacement over the next three quarters, expected to reduce borrowing costs by 20-25 basis points.

    05

    Operational Efficiency and Expansion

    Indostar has launched an internal cost optimization initiative, aiming for annualized savings of 8% to 10% compared to last year's operating costs over the next 12 months, with a long-term goal of achieving a cost-to-income ratio in the 50% range. The company is expanding its multiproduct branch model, successfully launching micro LAP in Tamil Nadu and planning to introduce it in Andhra Pradesh within the next two months, covering 16 branches. The micro LAP product will have an average ticket size of INR 6 lakhs, with yields of approximately 22%.

    06

    Market Positioning and Digital Adoption

    The company is leveraging its decreasing cost of funds to target a more premium customer segment, previously out of reach. It maintains a diversified and granular book across various used vehicle segments (cars, pick-ups, light trucks, small commercial vehicles, farm equipment, construction equipment). Indostar emphasizes its strong presence in Tier 3 and Tier 4 towns across 23 states with 450 branches as a competitive advantage. Significant progress has been made in digitizing processes, from onboarding to top-ups, offering a smoother customer experience.

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