Detailed Narrative
Q1 FY27 Financial Performance Overview
IndoStar Capital Finance Limited reported a robust Q1 FY27 with AUM reaching INR8,244 crores, marking a 2% sequential and 6% year-on-year growth. Retail disbursements surged by 44% year-on-year to INR1,235 crores, reflecting strong business momentum. The company achieved a Net Interest Income of INR219 crores, up 39% YoY, with NIM expanding to 8.8% from 6.2% a year ago, contributing to a pre-provisioning operating profit of INR93 crores and a PAT of INR11 crores.
Enhanced Asset Quality and Portfolio Diversification
The company demonstrated significant improvement in asset quality, with the early delinquency ratio reducing from 5.55% in Q1 FY26 to 2.29% in Q1 FY27. The proportion of customers with a CIBIL score above 725 increased to 84% in Q1 FY27, up from 63% in FY24. The portfolio mix continued to diversify, with passenger vehicles now contributing 21% of AUM (up from 17%) and construction equipment 10% (up from 8%), reducing reliance on M&HCV.
Micro LAP Business Expansion and Quality
The Micro LAP segment showed exceptional growth, with disbursements increasing by 85% year-on-year to INR50 crores and AUM growing nearly threefold to INR217 crores. This growth is accompanied by strong asset quality, with 99.7% of the portfolio remaining current and 90-plus DPD at just 0.17%. The company plans to double Micro LAP AUM during FY27 and expand into new states like UP and Bihar, targeting an average ticket size of INR10 lakhs.
Cost of Funds Optimization and Liquidity Management
IndoStar successfully managed its cost of funds, with the weighted average cost declining by nearly 80 basis points year-on-year. During the quarter, INR1,220 crores were raised at a cost of 9.11%. Management expects further reduction in borrowing costs as a significant tranche of high-cost debt (INR250 crores at ~13% interest rate) matures in Q2, aiming for an overall cost of borrowing to converge towards 9% by March. The company maintains strong liquidity with INR586 crores, INR235 crores above its policy minimum.
Strategic Investments in Capacity and Efficiency
The company is actively investing in capacity and infrastructure, increasing its front-end sales team by 30% since December and targeting a 50% increase by March '27. The branch network expanded to 468 across 24 states, with a target to cross 500 this year. Digitization efforts have reduced login-to-disbursement TAT in vehicle finance by 44% over the last year, enhancing productivity and customer experience.
Outlook on Credit Costs and Future Profitability
With the old book (pre-Jan 2025) running off, which currently accounts for almost 80% of NPAs, the company anticipates significant improvement in headline GNPA and NPA numbers, and a reduction in credit costs over the next 2-3 quarters. The new book, representing 68% of AUM, is performing well due to tightened underwriting standards, with a target to reach 85% of AUM by Q4 FY27, signaling a more resilient portfolio.