IndoStar Capital Finance Limited — Q1 FY26 earnings call

Call held 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

  • 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%.

Key financials

  1. Net Profit ₹535 Cr +4,763.6%YoY
  2. Disbursements ₹858 Cr -39.4%YoY
  3. AUM ₹7,783 Cr +8.5%YoY
  4. Net Interest Income ₹158 Cr +9.7%YoY
  5. Net Interest Margin 6.2%
  6. Gross Stage 3 4%
  7. Net Stage 3 1.7%
  8. Capital Adequacy Ratio 32.7%
  9. Debt-to-Equity Ratio 1.7×
  10. Operating Expenses ₹139 Cr +24.1%YoY

What they filed

Q1 FY27: revenue up 5.8%, net profit down 98.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue352 373 373 344 357 +1%346 −7%347 −7%364 +6%
EBITDA213 211 211 -279 185 −13%— — —
Net profit32 28 36 546 10 −69%8 −71%-424 −1278%11 −98%
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.

Guidance & targets

Disbursement

  • Disbursement Growth Disbursement · Q2 FY26 · High confidence 15%
    I think it's fair to say that we should see about 15% increase in this quarter on disbursement over last quarter. The momentum is very clear there.

    — Randhir Singh

Cost Savings

  • Annualized Operating Cost Savings Cost Savings · next 12 months · Medium confidence 8% to 10%
    the company expects to achieve annualized savings of 8% to 10% compared to last year's operating costs. These savings will begin to reflect over the next 12 months.

    — Randhir Singh

Profitability

  • Cost-to-Income Ratio Profitability · in a few years · Low confidence 50% range
    The goal remains clear: to become leaner, more efficient and move steadily towards a cost-to-income ratio in the 50% range in a few years.

    — Randhir Singh

Credit Growth

  • AUM Growth Credit Growth · FY26 · Medium confidence 12% to 15%
    What we are targeting the AUM growth for FY '26 is around 12% to 15%.

    — Jayesh Jain

  • AUM Growth Credit Growth · FY27 · Medium confidence 15%, 17%
    For '27 also, it would be around 15%, 17% AUM growth, which is what we are aiming at.

    — Jayesh Jain

Debt

  • Higher Cost Debt Replacement Debt · next 3 quarters · High confidence INR 1,480 crores
    We expect to replace another INR1,480 crores of higher cost debt over the next 3 quarters.

    — Randhir Singh

Cost of Funds

  • Cost of Borrowing Improvement Cost of Funds · next 3 quarters · Medium confidence 20 to 25 basis points
    That way probably, 20 to 25 basis points of increment or improvement in the cost of borrowing, you would see in next 3 quarters.

    — Jayesh Jain

Risks & concerns

  • Challenging Operating Environment

    medium

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

    Management acknowledged

  • Collection Softness

    medium

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

    Management acknowledged

  • Uncertainty in Security Receipt Recoveries

    medium

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

    Management acknowledged

Q&A highlights

3 direct
Impact of policy tightening on growth and recovery expectations for technically written-off loans. Direct
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

Disbursement target for FY26 and FY27 and the rationale behind the increase in employee cost. Direct
In terms of the disbursement target, maybe rather than disbursement, let me address it in the form of AUM because disbursement is a factor of a lot of other things also. What we are targeting the AUM growth for FY '26 is around 12% to 15%. For '27 also, it would be around 15%, 17% AUM growth, which is what we are aiming at.

The analyst sought clarity on growth targets, and management provided specific AUM growth guidance for the next two fiscal years, along with an explanation for a perceived increase in employee costs.

Asked by Rahul Kumar

Reasons for the decline in Q1 FY26 disbursements and the expected trend for upcoming quarters. Direct
Sure, Raj. Just a few reasons. One is, obviously, the Q1 has been soft in general not just for us, but I think industry in general. Like I mentioned in response to the previous question, we are seeing much better traction in Q2, and we would expect around 15% plus growth in disbursements in Q2 over Q1.

This question directly addresses a key financial metric (disbursements) that saw a decline, and management provided clear reasons and a positive outlook for the next quarter.

Asked by Raj Patel

3 min read 6 chapters

Detailed narrative

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.

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.

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.

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.

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%.

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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