INDOSTAR - IndoStar Capital Finance Limited Share Price

The management outlined a cautiously optimistic outlook, emphasizing growth in assets under management (AUM) and profitability, alongside strategic initiatives to address challenges. Key highlights include:

1. Financial Performance:

   • Consolidated PAT grew 64% YoY in Q3 FY25, with AUM rising 32% YoY to Rs.10,625 crores. Disbursements reached Rs.1,572 crores (+17% YoY).
   • Stand-alone entity (ICF) reduced borrowing costs by 110 bps over the past year, with liquidity of Rs.1,009 crores and undrawn sanctions of Rs.575 crores.

2. Macroeconomic & Sector Trends:

   • RBI's growth forecast lowered to 6.6% for FY25; inflation concerns persist.
   • CV industry faces headwinds (5.2% YoY sales decline) due to supply chain issues, higher new vehicle costs, and limited used vehicle availability. Focus on ancillary products (e.g., tyre financing) and Tier 3/4 markets to drive growth.

3. Asset Quality & Credit Costs:

   • GNPA at 4.9% (stand-alone), impacted by monsoon-related collection challenges. Stage 3 assets rose to 2.72%.
   • Credit costs spiked to 2.6% in Q3 but expected to moderate with improved collections. Management believes the "worst is behind" and targets normalized credit costs of 2"“2.5% in stable conditions.

4. Funding & Liquidity:

   • Borrowing costs reduced to 10.8% (from 11.9% YoY), with incremental costs at 10.2%. Focus on increasing bank borrowings for further cost optimization.

5. Housing Finance (Niwas):

   • Disbursements up 25% YoY; AUM grew 34% to Rs.2,747 crores. GNPA at 1.64%, with liquidity of Rs.233 crores.

6. Strategic Initiatives:

   • Monetized Rs.135 crore stressed assets via ARC, retaining Rs.85 crore SR.
   • Sold Niwas Housing Finance (awaiting regulatory approval), with proceeds to bolster CV/MSME lending.
   • Technology-driven operational efficiency and deeper rural penetration emphasized.

Outlook: Management expects improved profitability, stable NIMs (~5.6%), and AUM growth driven by retail CV/MSME focus. Challenges include managing delinquency and navigating macroeconomic risks (inflation, demand slowdown).

Question 1 (Vibha):
"There's been a sudden drop in other income... Can you please explain the reason and future outlook? Additionally, impairment... is exceptionally high. Is there any one-off item? Third, cost of funding is 10.8%... How do you see this in the coming financial year?"
Answer:
The drop in other income was due to a one-off branding-related reimbursement from a prior quarter. Higher credit costs (INR 47.94 crores) reflected delinquencies from heavy rains and economic sluggishness, but collections improved in late Q3. Funding costs decreased from 12.7% (Q2 FY24) to 10.8% (Q3 FY25), with incremental borrowing at 10.2%; further reductions are expected gradually.

Question 2 (Arnav Sachdev):
"What are the key reasons for the decline in collection efficiency? Guidance on GNPA/NNPA trends? Future growth plans for used cars/tractors?"
Answer:
Collection efficiency dipped due to heatwaves, monsoon disruptions, and slow economic activity. GNPA (4.92%) and NNPA trends are expected to improve with better collections. Growth in used tractors will target rural demand in Tier 3/4 markets, while used cars will focus on competitive Tier 3/4 financing.

Question 3 (Danesh Mistry):
"Why only 25% of incremental borrowing came from banks? Timeline for Housing Finance sale proceeds?"
Answer:
Bank borrowings were deferred due to undrawn sanctions (INR 575 crores); liquidity remains strong. Housing Finance sale proceeds (awaiting RBI approval) are expected by late Q4 FY25 or early Q1 FY26 and will fund CV/MSME growth.

Question 4 (Yajash Mehta):
"Credit costs rose sharply in Q3"”trends for ongoing/upcoming quarters? Housing Finance proceeds timeline?"
Answer:
Credit costs spiked due to delayed monsoon recovery but improved collections in late Q3 suggest stabilization. Proceeds from the Housing Finance sale are anticipated by late Q4 FY25 or early Q1 FY26.

Question 5 (Monshree Soni):
"Why did ECL provision drop to 46% despite higher GNPA? AUM guidance?"
Answer:
ECL provisions decreased due to an ARC transaction (INR 85 crores SRs sold with partial provisioning). AUM guidance for FY26 will be shared in the Q4 earnings call.

Question 6 (Anurag Mantry):
"Did ARC sale impact credit costs? Normalized credit cost expectations?"
Answer:
ARC sale did not increase credit costs as provisions were maintained. Normalized credit costs for the portfolio are projected at 2-2.5% annually, with variability based on macroeconomic conditions.