IndoStar Capital Finance Limited — Q2 FY26 earnings call

Call held 31 Oct 2025

Management summary

Indostar Capital reported a quarter of strategic transformation and retail focus, with NII growing 15.7% YoY and NIM expanding to 7.6%. While AUM saw a marginal sequential dip, disbursements increased 8% QoQ, driven by vehicle finance and the nascent Micro LAP business. The company demonstrated improved asset quality with GNPA at 3.04% and NNPA at 1.13%, alongside a reduction in borrowing costs. Management expressed confidence in future growth, leveraging its diversified retail franchise and operational efficiencies, despite acknowledging being behind H1 AUM guidance.

Highlights

  • Net Interest Income (NII) grew 15.7% YoY to ₹190 crores.

  • Net Interest Margin (NIM) expanded to 7.6% from 5.6% YoY.

  • Disbursements for Q2 FY26 were ₹927 crores, an 8% QoQ increase.

  • Total loan portfolio (AUM) stood at ₹7,564 crores, a 2.8% QoQ dip.

  • Gross Stage-III assets (GNPA) improved to 3.04%, and Net Stage-III assets (NNPA) to 1.13%.

  • Net Profit for the quarter was ₹10.4 crores, down 42.2% YoY.

  • Weighted average cost of borrowing declined to 10.2% from 10.8% YoY.

  • Capital adequacy remains strong at 37.3% with a debt-to-equity ratio of 1.4x.

Key financials

  1. Net Interest Income ₹190 Cr +15.7%YoY
  2. Net Interest Margin 7.6%
  3. Disbursements ₹927 Cr -36.2%YoY
  4. Total Loan Portfolio (AUM) ₹7,564 Cr -2.8%QoQ
  5. Net Profit ₹10.4 Cr -42.2%YoY
  6. Gross Stage-III Assets 3%
  7. Net Stage-III Assets 1.1%
  8. Weighted Avg Cost of Borrowing 10.2% -5.6%YoY
  9. Capital Adequacy Ratio 37.3%
  10. Debt-to-Equity Ratio 1.4×
  11. Collection Efficiency 94%

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

Credit Growth

  • NBFC Sector Loan Book Growth Credit Growth · FY26 · Medium confidence 15%-17%
    According to ICRA, the NBFC sector is expected to record 15%-17% year-on-year loan book growth in FY '26, led by strong traction in vehicle finance, MSME, and micro-lending segments.

    — Randhir Singh, Managing Director and Executive Vice Chairman

  • Micro LAP Loan Book Growth Credit Growth · FY26 · Medium confidence over 25%
    According to CARE Edge Rating, the Micro LAP loan book is expected to grow by over 25% in FY '26, driven by self-employed borrowers and small businesses seeking secured affordable funding.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Volume

  • Commercial Vehicle Volumes Growth Volume · FY26 · Medium confidence 3-5%
    Moving to the commercial vehicle industry, ICRA expects overall CV volumes to grow by 3-5% in FY '26, driven mainly by the light and medium commercial vehicle segments, while demand for heavy trucks remains moderate.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Disbursements

  • H2 Disbursements vs H1 Disbursements · H2 FY26 · High confidence 1.4-1.5x
    Typically, disbursements in H2 for the company have been about 1.4-1.5x of H1.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Micro LAP Expansion

  • Number of States for Micro LAP Micro LAP Expansion · this financial year · High confidence 3-4 states
    And we would also guide that we will try to be in at least 3 or 4 states in this financial year.

    — Randhir Singh, Managing Director and Executive Vice Chairman

  • Micro LAP Branches Micro LAP Expansion · over a period of time · Medium confidence majority of 450 branches
    But in general, our guidance is that eventually as a company, we would be launching Micro LAP in majority of our 450 branches, right, over a period of time.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Cost of Funds

  • Incremental Borrowing Cost Cost of Funds · ongoing · High confidence 9%-9.25%
    This declining trend should continue as our incremental borrowing cost is now around 9%-9.25%, supported by improving credit profile, strong lender confidence, and access to more competitive borrowing sources.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Asset Quality

  • Headline GNPA Asset Quality · ongoing · High confidence about 3%
    But in general, what we really want to target is the headline GNPA which is about 3%.

    — Randhir Singh, Managing Director and Executive Vice Chairman

AUM Growth

  • AUM Growth AUM Growth · FY26 · Medium confidence 12%-15%
    So as you have already seen the H1 number, and we are kind of behind our guidance, while the effort would be there to kind of maintain the guidelines and deliver the performance as per our guidance.

    — Jayesh Jain, Chief Financial Officer

  • AUM Growth AUM Growth · FY27 · Medium confidence 15%-17%

    — Jayesh Jain, Chief Financial Officer

Micro LAP Contribution

  • Micro LAP AUM as % of Total AUM Micro LAP Contribution · eventually · Medium confidence 20%-30%
    And I think we would look to build a significant AUM, about 20%-30% of our total AUM should come from LAP business and which is no different from what many of our peers have.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Collection Efficiency

  • Collection Efficiency Collection Efficiency · in 2 quarters · High confidence 97%
    So what you need to see is, you will see this 97% versus what happens in 2 quarters from now.

    — Randhir Singh, Managing Director and Executive Vice Chairman

Risks & concerns

  • General softness in the NBFC industry, particularly the commercial vehicle segment.

    medium

    Management noted general softness in the NBFC industry, especially in the commercial vehicle segment, influencing their calibrated growth approach.

    Management acknowledged

  • Collection softness and delinquency rates.

    medium

    Proactive credit policy adjustments were undertaken in response to collection softness observed within their portfolio and across peer groups.

    Management acknowledged

  • Impact of GST rate cuts on new vehicle prices and subsequent valuation of used vehicles.

    low

    Management acknowledged that a drop in new vehicle prices due to GST cuts would require adjustments to the valuation grid for used vehicles, which is still playing out.

    Analyst acknowledged

  • Delay in removing micro market restrictions impacting disbursement growth.

    low

    Management stated that a conscious delay in removing restrictions in about 110 micro markets contributed to the difference in disbursement growth from guidance.

    Management acknowledged

Areas of evasion (1)

  • OEM pricing strategy

Q&A highlights

2 direct
Micro LAP scaling strategy and concentration in vehicle finance. Direct
Coming to Micro LAP, like we said that we have launched recently, you will see this business grow. ... we are building the business in AP and Telangana and we should offer, some people have already joined. In fact, we should be able to disburse our first loan either today or tomorrow in AP. So with that, we will have TN, AP plus Telangana coming on board in the next 3-6 months. And we would also guide that we will try to be in at least 3 or 4 states in this financial year.

Addresses the strategic shift towards Micro LAP and provides concrete expansion plans and timelines, which is crucial for the company's stated retail focus.

Asked by Rhea Jain

AUM degrowth, branch/employee count reduction, and overall growth outlook for H2 FY26 and next 2 years. Direct
I think the number is ballpark has remained 440-450, plus minus few branches here and there. ... There has been some drop in the number of people. And I did cover in my opening speech, we do plan to make it up. ... you will see both branch numbers stabilizing around 450. The Human Capital will go back to the numbers you saw earlier. ... we obviously want to pursue growth.

Directly addresses concerns about AUM decline and operational scaling, providing context and future plans for branch and employee numbers, which are key to growth.

Asked by Sumit Bhalotia

AUM guidance for FY26/FY27 given H1 performance. Partial
So as you have already seen the H1 number, and we are kind of behind our guidance, while the effort would be there to kind of maintain the guidelines and deliver the performance as per our guidance.

Reveals that the company is currently behind its AUM growth guidance for FY26, indicating a potential challenge in meeting the stated targets despite management's continued effort.

Asked by Faizaan Joad

2 min read 7 chapters

Detailed narrative

Q2 FY26 Financial Performance Overview

Indostar Capital reported a Net Interest Income (NII) of ₹190 crores for Q2 FY26, marking a 15.7% year-on-year increase from ₹164 crores in Q2 FY25. The Net Interest Margin (NIM) significantly improved to 7.6% from 5.6% in the prior year. Net profit for the quarter stood at ₹10.4 crores, compared to ₹18 crores in the same quarter last year, reflecting a strategic shift and asset quality adjustments.

Strategic Transformation and Retail Focus

The company has undergone a significant transformation from a corporate lender to a retail NBFC, focusing on vehicle finance and Micro LAP. This strategic shift is aimed at sustainable and quality growth, with the Micro LAP business, launched in FY25, gaining traction. Management highlighted the successful sale of its wholly-owned subsidiary, Niwas Housing Finance Private Limited, to streamline focus on core growth engines.

Vehicle Finance Business Performance

Disbursements in the vehicle finance business grew 8% sequentially this quarter, reaching ₹927 crores, compared to ₹858 crores in Q1 FY26. The company has diversified its vehicle finance portfolio beyond medium and heavy commercial vehicles to include passenger vehicles, construction equipment, and farm equipment. Management expects H2 disbursements to be about 1.4-1.5x of H1, driven by operational improvements and market demand.

Micro LAP Expansion and Strategy

Micro LAP is identified as a key growth driver, with the loan book expected to grow over 25% in FY26 according to CARE Edge Rating. Indostar is expanding its Micro LAP operations from Tamil Nadu to Andhra Pradesh and Telangana, aiming to be present in 3-4 states this financial year using its existing 450-branch vehicle finance network. The long-term goal is for Micro LAP to constitute 20%-30% of the total AUM.

Asset Quality and Collection Efficiency

Asset quality showed significant improvement, with Gross Stage-III assets (GNPA) at 3.04% and Net Stage-III assets (NNPA) at 1.13%. This was attributed to proactive credit policy adjustments and a new policy to write off loans over 210 days past due. Collection efficiency remained healthy at around 94%, and management aims to bring it back to 97% within the next two quarters, reflecting confidence in the new book's performance.

Funding Profile and Cost of Funds

The company's weighted average cost of borrowing declined from 10.8% in Q2 FY25 to 10.2% in Q2 FY26, a reduction of 60 basis points. Incremental borrowing costs are now in the range of 9%-9.25%, supported by an improving credit profile and strong lender confidence. This reduction in funding costs is expected to enable the company to serve prime customer segments and further diversify its portfolio, enhancing profitability.

Operational Enhancements and Outlook

Indostar is focusing on stabilizing and optimizing its 450-branch network, converting 48 micro-branches to full-fledged ones, and increasing field sales staff. While AUM saw a marginal sequential dip to ₹7,564 crores, management expects a return to growth in subsequent quarters. They aim for 12%-15% AUM growth in FY26 and 15%-17% in FY27, despite acknowledging being behind H1 targets, emphasizing a balanced approach between growth, profitability, and asset quality.

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