IndoStar Capital Finance Limited — Q4 FY25 earnings call

Call held 6 May 2025

Management summary

Indostar Capital reported a strong Q4 and FY25, driven by robust AUM growth across both its standalone vehicle finance and housing finance segments. The company is strategically diversifying into micro LAP, leveraging its existing branch network, and focusing on cost optimization and reducing borrowing costs. Management expressed confidence in future growth and profitability, supported by strong capital and the imminent sale of its housing finance subsidiary.

Highlights

  • Consolidated AUM reached INR11,053 crores, marking a 26% YoY growth and 4% QoQ increase.

  • Consolidated Net Profit for Q4 FY25 was INR36 crores, up 33% QoQ from INR27 crores and 2% YoY from INR35 crores.

  • Consolidated Net Interest Income (NII) grew 36% YoY to INR175 crores, with NIM stable at approximately 6%.

  • Standalone AUM grew 23% YoY to INR7,963 crores, while Niwas Housing Finance (HFC) AUM surged 36% YoY to INR3,091 crores.

  • The company targets 12-15% AUM growth in FY26 for the standalone business and expects to reduce borrowing costs by 200 basis points in Q1 FY26.

  • Micro LAP business launched, targeting INR300 crore AUM by March 2026, with average ticket size less than INR6 lakhs and yields around 22%.

  • Cost-to-income ratio is targeted to improve to the 50% range from a historic higher level.

  • Capital adequacy remains strong at 28.5% for standalone and 49.8% for HFC, with low leverage.

Key financials

  1. Consolidated AUM ₹11,053 Cr +26%YoY
  2. Consolidated Net Profit ₹36 Cr +2%YoY
  3. Consolidated NII ₹175 Cr +36%YoY
  4. Consolidated NIM 6%
  5. Standalone AUM ₹7,963 Cr +23%YoY
  6. Standalone Gross Stage 3 4.5%
  7. Standalone Net Stage 3 2.5%
  8. Standalone Credit Cost 2.8%

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

  • Niwas Housing Finance Private Limited
    ₹3,091 Cr AUM₹1,208 Cr Disbursements (FY25)₹453 Cr Disbursements (Q4 FY25)₹23.7 Cr Profit After Tax (Q4 FY25)₹67.8 Cr Profit After Tax (FY25)3.2% RoA (FY25)11.1% RoE (FY25)49.8% Capital Adequacy3.4× Debt-to-Equity99% 90-plus DPD1.4% Gross Stage 3

Guidance & targets

AUM Growth

  • Standalone AUM Growth AUM Growth · FY26 · Medium confidence 12% to 15%
    As our branch count increased by almost 150 in the last 2 years, along with significant manpower increases, we would look to grow our AUM in FY '26 by 12% to 15% and enhance the profitability.

    — Randhir Singh, Executive Vice Chairman

  • Micro LAP AUM AUM Growth · by March 2026 · High confidence INR300 crore
    Our monthly disbursement run rate is about INR15 crores, and we would target crossing INR300 crore AUM by March 2026.

    — Randhir Singh, Executive Vice Chairman

Cost Efficiency

  • Cost-to-Income Ratio Cost Efficiency · Medium confidence 50% range
    The goal is to become lean and efficient and achieve cost-to-income ratio in the 50% range.

    — Randhir Singh, Executive Vice Chairman

Cost of Funds

  • Reduction in borrowing cost Cost of Funds · Q1 FY26 · High confidence 200 basis points
    We'll be replacing our historical high-cost debt repayments of around INR800 crores in Q1 FY '26, which carries a coupon of about 12% by fresh borrowings at around 10%, which is a reduction of about 200 basis points.

    — Randhir Singh, Executive Vice Chairman

  • Overall borrowing rate Cost of Funds · long run · Medium confidence 9% handle
    Yes. I think in the long run, given our AA- rating, we should essentially be borrowing, right, while things normalize in 9% handle.

    — Randhir Singh, Executive Vice Chairman

Profitability

  • RoA Profitability · Low confidence 2% to 3%
    And most peers in our industry of our size typically have an ROA of about 2% to 3%, depending upon their life stage, how much they are investing in the growth, etc.

    — Randhir Singh, Executive Vice Chairman

  • RoE Profitability · Low confidence 10% to 19%
    And I think average ROAS obviously range between 10% to about 19%, right? So we would like to obviously be in the top quartile aspirationally as far as this industry is concerned.

    — Randhir Singh, Executive Vice Chairman

Funding

  • Incremental funding needed Funding · Medium confidence INR4,500 crores to INR5,000 crores
    Sure. Considering the expected inflow, which is a large on the HFC sale and considering the 12%, 15% AUM growth, we would probably need to raise incremental funding of around INR4,500 crores to INR5,000 crores considering the asset growth and the liability repayments.

    — Jayesh Jain, Chief Financial Officer

Risks & concerns

  • Collection softness and broader economic sluggishness

    medium

    Experienced some softness in business and collections during the year, impacted by external factors like heat waves, monsoons, and broader economic sluggishness, leading to credit policy adjustments.

    Management acknowledged

  • Impact of state ordinances on unorganized lenders

    low

    Management clarified that recent ordinances in Tamil Nadu and Karnataka targeting unorganized lenders are not applicable to formal lenders like IndoStar.

    Analyst downplayed

Areas of evasion (1)

  • specific timeline for full resolution of SRs

Q&A highlights

2 direct
Collection efficiency and resolution of Security Receipts (SRs) Partial
So in terms of a resolution, there is no resolution which is there. As I said, the incremental provision was only required at INR10 crores only. So this kind of work is performing well and the money is coming out. In terms of incremental SR,, which was done was done in 85-15 structure, which was there.

Analyst questioned the lack of clear progress on SR resolution and whether asset sales were fully cash. Management clarified the 85-15 structure and ongoing realization but did not provide a definitive timeline for full resolution.

Asked by Vivek Ramakrishnan

Reasons for AUM growth slowing to single digits in Q4 Direct
I'd like to mention that given some of the softness we were seeing on the collection in our portfolio as well as for the broader vehicle finance and NBFCs in general, on a selective basis for a few profiles we have tightened our policy. That has resulted in some drop.

Analyst highlighted the lower AUM growth in Q4. Management directly attributed this to proactive tightening of credit policy due to observed collection softness, indicating a cautious approach to growth over aggressive expansion.

Asked by Varun Gajaria

AUM growth guidance (12-15%) versus available liquidity post HFC sale Direct
The reason for slightly lower expectation and guidance release, like we explained that we did take some policy measures and tighten some of our creditors selectively in few geographies because we swathe trend in the market, not just for us, but for NBFCs general. And those filters may remain in place for 1, 2 quarters.

Analyst questioned why AUM growth guidance was not higher given strong liquidity. Management explained the conservative stance due to broader market trends affecting NBFCs and selective tightening of credit policies, which may persist for a few quarters.

Asked by Chirag Gandhi

2 min read 6 chapters

Detailed narrative

Q4 FY25 Performance Overview: Robust AUM Growth and Profitability

Indostar Capital reported a strong Q4 FY25, with consolidated Assets Under Management (AUM) reaching INR11,053 crores, reflecting a 26% year-on-year (YoY) and 4% quarter-on-quarter (QoQ) growth. Consolidated Net Interest Income (NII) increased by 36% YoY to INR175 crores, maintaining a Net Interest Margin (NIM) of approximately 6%. The company posted a consolidated net profit of INR36 crores for the quarter, an increase from INR27 crores in the preceding quarter.

Strategic Diversification into Micro LAP

The company has successfully launched its micro LAP business, targeting underbanked micro-enterprises in semi-urban and rural areas. This segment features an average ticket size of less than INR6 lakhs, LTVs below 50%, and yields around 22% with 5-7 year tenures. As of March 2025, the micro LAP portfolio stands at over INR50 crores with nearly 1,000 borrowers and no overdue customers, aiming to reach INR300 crore AUM by March 2026.

Cost Optimization and Funding Cost Reduction Initiatives

Indostar Capital is actively pursuing an internal cost optimization project to improve its historic cost-to-income ratio, targeting a reduction to the 50% range. Concurrently, the company expects significant interest cost reductions, planning to replace INR800 crores of high-cost debt (12% coupon) in Q1 FY26 with new borrowings at approximately 10%, achieving a 200 basis point reduction. The overall cost of funds for Q4 FY25 was around 11%, with incremental borrowing at 10.3% XIRR.

Standalone and Housing Finance Business Performance

The standalone entity (ICF) reported an AUM of INR7,963 crores, growing 23% YoY, with disbursements of INR1,081 crores in Q4 FY25. Niwas Housing Finance Private Limited, the wholly-owned subsidiary, achieved an AUM of INR3,091 crores, a 36% YoY increase, and disbursed INR453 crores in Q4 FY25. Niwas also reported a Profit After Tax of INR23.7 crores for Q4 FY25, with a Return on Asset (RoA) of 3.2% and Return on Equity (RoE) of 11.1% for FY25.

Asset Quality and Collection Efficiency

For the standalone business, Gross Stage 3 assets stood at approximately 4.52% and Net Stage 3 assets at 2.46% in Q4 FY25, with credit cost remaining flat at 2.75%. Collection efficiency (EMI to EMI) was steady at 91%, while EMI plus overdue collections improved to 97%. Niwas Housing Finance reported a Gross Stage 3 of 1.35% and 90-plus DPD at 0.99%. Management noted some collection softness earlier in the year, leading to proactive credit policy adjustments.

Capital Adequacy and Future Growth Outlook

Indostar maintains a strong capital position, with a capital adequacy ratio of 28.5% for the standalone entity and 49.8% for Niwas Housing Finance, alongside low leverage of approximately 2x and 3.4x respectively. The company targets 12-15% AUM growth for the standalone business in FY26. Management expressed confidence in not needing additional equity capital for the next 2-3 years, especially with the imminent proceeds from the HFC sale.

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