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    Indostar Capital

    INDOSTARGood
    Financial Services·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

    8

    • 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.

    What Changed3

    vs Q3 FY26

    Guidance items14 → 12 (-2)Risks discussed2 → 4 (+2)Q&A highlights8 → 3 (-5)

    Key financials

    Single quarter

    11 metrics
    1. 01Net Interest Income₹190 Cr+15.7%YoY
    2. 02Net Interest Margin7.6%
    3. 03Disbursements₹927 Cr-36.2%YoY
    4. 04Total Loan Portfolio (AUM)₹7,564 Cr-2.8%QoQ
    5. 05Net Profit₹10.4 Cr-42.2%YoY

    Guidance & targets

    12
    CategoryTargetPriority
    Credit Growth
    NBFC Sector Loan Book Growth
    15%-17%
    		Medium
    Credit Growth
    Micro LAP Loan Book Growth
    over 25%
    		Medium
    Volume
    Commercial Vehicle Volumes Growth
    3-5%
    		Medium
    Disbursements
    H2 Disbursements vs H1
    1.4-1.5x
    		High
    Micro LAP Expansion
    Number of States for Micro LAP
    3-4 states
    		High
    Micro LAP Expansion
    Micro LAP Branches
    majority of 450 branches
    		Medium
    Cost of Funds
    Incremental Borrowing Cost
    9%-9.25%
    		High
    Asset Quality
    Headline GNPA
    about 3%
    		High
    AUM Growth
    AUM Growth
    12%-15%
    		Medium
    AUM Growth
    AUM Growth
    15%-17%
    		Medium
    Micro LAP Contribution
    Micro LAP AUM as % of Total AUM
    20%-30%
    		Medium
    Collection Efficiency
    Collection Efficiency
    97%
    		High

    Risks & concerns

    5
    RiskSeverity

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

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

    medium

    Collection softness and delinquency rates.

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

    medium

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

    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

    low

    Delay in removing micro market restrictions impacting disbursement growth.

    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

    low

    Areas of Evasion(1)

    • OEM pricing strategy

    Q&A highlights

    3

    “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

    2 min read7 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    07

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.