Indostar Capital

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.

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.

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.

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.

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%.

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.