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    IndoStar Capital Finance Limited

    INDOSTARGood
    Financial Services·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

    8

    • 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.

    What Changed3

    vs Q1 FY26

    Tone shiftMixed → GoodGuidance items7 → 8 (+1)Risks discussed3 → 2 (-1)

    Key financials

    Single quarter

    08 metrics
    1. 01Consolidated AUM₹11,053 Cr+26%YoY
    2. 02Consolidated Net Profit₹36 Cr+2%YoY
    3. 03Consolidated NII₹175 Cr+36%YoY
    4. 04Consolidated NIM6%
    5. 05Standalone AUM₹7,963 Cr+23%YoY

    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 Adequacy3.4x Debt-to-Equity99% 90-plus DPD135% Gross Stage 3
    List

    Guidance & targets

    8
    CategoryTargetPriority
    AUM Growth
    Standalone AUM Growth
    12% to 15%
    		Medium
    AUM Growth
    Micro LAP AUM
    INR300 crore
    		High
    Cost Efficiency
    Cost-to-Income Ratio
    50% range
    		Medium
    Cost of Funds
    Reduction in borrowing cost
    200 basis points
    		High
    Cost of Funds
    Overall borrowing rate
    9% handle
    		Medium
    Profitability
    RoA
    2% to 3%
    		Low
    Profitability
    RoE
    10% to 19%
    		Low
    Funding
    Incremental funding needed
    INR4,500 crores to INR5,000 crores
    		Medium

    Risks & concerns

    3
    RiskSeverity

    Collection softness and broader economic sluggishness

    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

    medium

    Impact of state ordinances on unorganized lenders

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

    low

    Areas of Evasion(1)

    • specific timeline for full resolution of SRs

    Q&A highlights

    3

    “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

    2 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    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.