IndoStar Capital Finance Limited — Q3 FY26 earnings call

Call held 10 Feb 2026

Management summary

IndoStar Capital reported a strong Q3 FY26 with significant disbursement growth, particularly in vehicle finance, and improved asset quality in newer loan cohorts. Net Interest Income saw healthy year-on-year growth, aided by reduced borrowing costs. However, net profit declined quarter-on-quarter due to a one-time expense, and overall NPAs remained a point of discussion, though management expressed confidence in corrective actions.

Highlights

  • Disbursements grew 20% QoQ to INR1,117 crores in Q3 FY26, with vehicle finance disbursements increasing 21% QoQ to INR1,087 crores.

  • Net Interest Income (NII) rose 16.1% YoY to INR209 crores, supported by a reduction in incremental borrowing costs to 9.1% from 10.2% in Q3 FY25.

  • Asset quality improved significantly in newer cohorts, with delinquency levels in the calendar year 2025 cohort nearly 50% lower than earlier cohorts.

  • The Micro LAP segment demonstrated strong early traction, recording INR30 crores in disbursements and an AUM of INR128 crores, with yields of about 22%.

Concerns

  • Gross Stage 3 stood at 4.06% and Net Stage 3 at 1.76%, with an analyst noting an 'upward trend' in NPAs, which management attributed to older cohorts.

  • Net profit for Q3 FY26 was INR8.3 crores, a decrease from INR10.5 crores in Q2 FY26, partly due to a one-time INR4.8 crores impact from wage code changes.

Key financials

  1. Disbursements ₹1,117 Cr +20.5%QoQ
  2. Total Loan Portfolio (AUM) ₹7,692 Cr +1.7%QoQ
  3. Net Interest Income (NII) ₹209 Cr +16.1%YoY
  4. Net Profit ₹8.3 Cr -21%QoQ
  5. Gross Stage 3 4.1%
  6. Net Stage 3 1.8%
  7. Debt to Equity 1.2×
  8. Incremental Borrowing Cost 9.1%

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.

Segment breakdown

Share of Disbursements
₹1,117 Cr Total
  • Vehicle Finance ₹1,087 Cr 97.3%
  • Micro LAP ₹30 Cr 2.7%

Capital allocation

high confidence
  • Debt Debt disclosed Cost 10.3%
    • Rate reset Incremental borrowing cost reduced to 9.1% from 10.2% in Q3 FY25, overall cost of funds eased to 10.3% from 10.8% last year.
    Our balance sheet remains strong, capital adequacy at 14.4%, providing ample headroom for growth. Debt to equity at 1.2x, reflecting a resilient capital structure, a positive ALM position across all buckets. Cost of funds have eased to 10.3%, down from 10.8% last year and incremental borrowing cost reduced to 9.1% from 10.2% in Q3 FY '25.
  • M&A BCP V Multiple Holdings & Florintree Equity allotment · Closed

    Conversion of outstanding warrants, strengthening capital base.

    Preferential allotment of 1.4 crore shares to BCP V and 1.1 crore shares to Florintree, resulting in BCP V holding 55.98% and Florintree 6.753% of equity share capital.

    We concluded the preferential allotment of 1.4 crores shares to our holding company, BCP V Multiple Holdings and 1.1 crores shares to Florintree on conversion of the outstanding warrants issued in FY '25. BCP V and Florintree now holds 55.98% and 6.753% of equity share capital, respectively.
  • Liquidity Cash ₹22 Cr Cash and cash equivalents of INR22 crores, with an additional INR277 crores invested in mutual funds, contributing to the treasury asset.
    Yes, this money had come in, and this would be part of the treasury asset and would have been deployed also. So our cash and cash equivalent at the end of the quarter was around INR22 crores only. And there was a mutual fund investment of around INR277 crores, so this would be part of the treasury asset.

Guidance & targets

NBFC Sector

  • Loan Book Growth NBFC Sector · FY26 · High confidence 15-17%
    Reflecting this favorable environment, ICRA continues to project 15% to 17% loan book growth for the NBFC sector in FY '26...

    — Randhir Singh

  • AUM Growth NBFC Sector · FY26 · High confidence 18-19%
    ...while CRISIL expects AUM growth of around 18% to 19%, driven by vehicle finance, MSME and micro lending segments.

    — Randhir Singh

Vehicle Finance

  • AUM Vehicle Finance · March 2027 · High confidence INR11 lakh crores
    Vehicle financing is set to emerge as a key growth engine for NBFCs with total vehicle loan AUM projected to reach nearly INR11 lakh crores by March 2027.

    — Randhir Singh

  • AUM Growth (CRISIL) Vehicle Finance · Annually · High confidence 16-17% annually
    CRISIL rating estimates vehicle finance AUM to grow at a steady 16% to 17% annually, with the used vehicle segment contributing a significant share of the incremental growth.

    — Randhir Singh

  • Yield Vehicle Finance · near term · High confidence 17%
    So I think on the vehicle finance 17% is where we intend to operate for the near term unless until we see, obviously, more reduction in our own interest cost.

    — Randhir Singh

Secured MSME/LAP

  • Growth Secured MSME/LAP · current and next fiscal year · High confidence 26-27%
    The loan against property and secured MSME segment, which accounts for around 15% of NBFC AUM is expected to normalize while remaining healthy with growth projected at 26% to 27% over the current and next fiscal year.

    — Randhir Singh

Disbursements

  • Overall Growth Disbursements · QoQ (Q3 over Q2) · High confidence 20%
    So this was a number what quarter-on-quarter growth last quarter, Q3 over Q2.

    — Jayesh Jain

  • Sequential Improvement Disbursements · Future quarters · Medium confidence continue improving sequentially
    We expect disbursement to continue improving sequentially as we deepen our footprint and benefit from rising demand across our core segments.

    — Jayesh Jain

Micro LAP

  • Yield Micro LAP · long time · High confidence 20%+
    And even on a go-forward basis, it's fair to say that we will have yields in excess of 20% for a long time.

    — Randhir Singh

  • AUM Growth Micro LAP · next year · High confidence double
    And I think it's fair to say that next year, we would try and double our AUM from this year's level, so that's really the plan that we are working on.

    — Randhir Singh

Credit Cost

  • Credit Cost Credit Cost · Ongoing · Medium confidence ~2% plus/minus a few basis points
    We would target from a business plan perspective, we would target a credit cost of about 2% plus/minus a few basis points here and there. That is really our plan. That's how we are planning our business.

    — Randhir Singh

Sales

  • Frontline Sales Number Sales · next quarter · High confidence 30% increase
    We have taken a significant hiring drive in the last quarter, and that will increase number of our frontline sales-people by 30% in next quarter compared to this quarter.

    — Randhir Singh

Market context

  • India GDP Growth Macroeconomic · FY26 · High confidence 7.3%
    From a broader macroeconomic perspective, the Reserve Bank of India has revised its FY '26 GDP growth forecast to 7.3%.

    — Randhir Singh

  • India GDP Growth (CRISIL) Macroeconomic · FY26 · High confidence 7%

    Previously 6.8% → 7%

    CRISIL has also raised its growth estimate to 7% from an earlier 6.8%, supported by strong private consumption alongside growth in the manufacturing and services sector.

    — Randhir Singh

What to watch in Q4 FY26

Disbursement Growth

next quarter
Current 20% QoQ (INR1,117 crores)
Target Sequential improvement and continued 20% growth momentum

Why it matters

Sustained disbursement growth is key to achieving AUM targets and overall business expansion.

We expect disbursement to continue improving sequentially as we deepen our footprint and benefit from rising demand across our core segments.

Risks & concerns

  • Upward trend in Gross Stage 3 (GNPA)

    medium

    GNPA at 4.06% was noted by an analyst as an upward trend. Management attributed this to older cohorts and emphasized that new originations (post-Jan 2025) show 50% lower delinquency.

    Analyst acknowledged

  • Impact of one-time wage code changes on net profit

    low

    Net profit for Q3 FY26 was impacted by a one-time charge of INR4.8 crores due to wage code changes.

    Management acknowledged

Q&A highlights

8 direct
NPA upward trend and long-term asset quality measures Direct
If you see our presentation, which will show you on non-starter as well as early delinquency, Slide Number 19, you would see that the new origination after the policy tightening, the delinquency is almost 50% lower. So over a period of time, as this loan book which is created after January becomes a higher percentage of the overall book, this number will automatically come down...

Addresses analyst concern on rising NPAs by highlighting significant improvement in new loan cohorts and strategic measures like early warning systems and collection infrastructure.

Asked by Nakul Doshi

Pain points contributing to NPA rise Direct
So essentially, it's really some of the profiles where we witnessed softness, right. And many of these have been corrected, obviously, long time back, at the beginning of the year itself. But we still have, obviously, assets from the previous period. But most of the softness that we saw, we have taken very strong corrective action.

Clarifies that the NPA rise is primarily due to older, weaker profiles from previous periods, which have already been addressed by corrective actions.

Asked by Varun Gajaria

Leverage and growth headroom Direct
Okay. So Danesh, we are under levered. And obviously, the reason for that is sale of our subsidiary, which obviously led to significant cash infusion. I think if you look at most of peers in the industry are operating somewhere between 3.5x to 5x, right? So that's really been where most of our peers are. And it's fair to say that, that is quite an acceptable level, which is something that we will also reach with the growth that we're pursuing.

Highlights the company's significant headroom for growth without needing additional equity, given its low debt-to-equity ratio compared to peers.

Asked by Danesh Mistry

Status of policy tightening and future provisioning Direct
We're not tightening. We tightened in January last year, that was the most significant tightening and then a few small refinements in Feb and March, but nothing since then. So no more tightening is required because the portfolio is actually behaving well.

Provides clarity that the period of significant policy tightening is over, and the company is now comfortable with its portfolio quality, even removing some restrictions.

Asked by Danesh Mistry

Future trajectory of incremental cost of borrowings Direct
No, absolutely. So I mean, you would see there is a gap between our incremental cost of borrowing, which is at about 9.1% versus our cost of borrowing in the book, that is 10.3%... I think we could. We'll have to see. We have seen a significant reduction already. We do think that further refinement is possible.

Indicates potential for further reduction in borrowing costs, which could positively impact NIMs as the gap between incremental and overall cost of borrowing converges.

Asked by Danesh Mistry

AUM growth outlook for Q4 FY26 and FY27 Direct
So Vignesh, I would just point you towards the trend that we have over the last quarter, wherein our total growth in disbursements were about 20%. And while for this quarter, obviously, while typically January is slow because of many holidays, we do think there is a strong momentum in the last quarter as well.

Reiterates confidence in continued growth momentum, supported by increased frontline sales and branch expansion, indicating a positive outlook for AUM.

Asked by Vignesh Iyer

Scaling Micro LAP business and target regions Direct
And I think it's fair to say that next year, we would try and double our AUM from this year's level, so that's really the plan that we are working on... So we have now Tamil Nadu, we have AP, we have Telangana and we have Gujarat. TN fully operational, AP and Telangana, almost 50% done, Gujarat on a pilot basis. I think it's fair to say that in the next 6 months, we would like to add one more state for our MLAP business.

Outlines aggressive growth plans for the Micro LAP segment, including specific AUM targets and geographical expansion strategy, highlighting its importance for diversification.

Asked by Darshan Shah

Credit cost outlook and target Direct
We would target from a business plan perspective, we would target a credit cost of about 2% plus/minus a few basis points here and there. That is really our plan. That's how we are planning our business.

Provides a specific numerical target for credit cost, which is crucial for profitability projections and understanding management's risk appetite.

Asked by Hitesh Arora

2 min read 6 chapters

Detailed narrative

Q3 FY26 Performance Overview

IndoStar Capital reported total loan portfolio of INR7,692 crores in Q3 FY26, with disbursements reaching INR1,117 crores, a 20% increase QoQ. Net Interest Income (NII) grew 16.1% YoY to INR209 crores. However, net profit for the quarter stood at INR8.3 crores, down from INR10.5 crores in Q2 FY26, partly due to a one-time INR4.8 crores impact from wage code changes. Gross Stage 3 was 4.06% and Net Stage 3 was 1.76%.

Strategic Focus on Retail-Led Growth

The company is pursuing retail-led growth, focusing on semi-urban and rural India, with vehicle finance and Micro LAP as core businesses. Following its exit from affordable housing, IndoStar aims to scale disbursements in used vehicle finance and Micro LAP. This strategy positions the company as a secure, scalable, and growth-focused lending platform, targeting underserved and underbanked borrowers.

Significant Asset Quality Improvements in New Cohorts

Management highlighted substantial improvements in asset quality, with delinquency levels in the calendar year 2025 cohort nearly 50% lower than earlier cohorts. This improvement is attributed to proactive policy tightening, a comprehensive early warning system, and enhanced collection infrastructure. The company also noted a sharp reduction in non-starters and early delinquencies, providing confidence for future growth.

Micro LAP Segment Expansion and Performance

The Micro LAP segment recorded disbursements of INR30 crores in Q3 FY26, with AUM reaching INR128 crores. Loans are offered with tenures up to 10 years, average ticket size of INR6-7 lakhs, and yields around 22%. The segment boasts significant digitization, with nearly 100% customer onboarding via e-applications and e-agreements, and strong credit quality with only 6 customers in 1+ DPD out of 2,215. The company plans to double Micro LAP AUM next year and expand geographically.

Funding and Liquidity Position

IndoStar maintains a strong balance sheet with a capital adequacy ratio of 14.4% and a debt-to-equity ratio of 1.2x, indicating significant headroom for growth. The cost of funds eased to 10.3% from 10.8% last year, and incremental borrowing costs reduced to 9.1% from 10.2% in Q3 FY25. The company has a positive cumulative mismatch across all ALM buckets, ensuring a robust liquidity profile.

Talent and Distribution Enhancement

To strengthen its vehicle finance business, IndoStar invested in talent, appointing Mr. Amandeep Singh Sandhu as Chief Operating Officer for Vehicle Finance. The company also expanded its network by adding 7 new branches during the quarter and plans to increase its frontline sales force by 30% in the next quarter. These initiatives are expected to drive sustainable high-quality growth.

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