Summary
IndoStar Capital Finance Limited - Q3 FY 2026 Earnings Call Summary Tuesday, February 10, 2026 12:00 PM
Event Participants
Executives 2 Jayesh Jain (CFO), Randhir Singh (MD & Executive Vice Chairman)
Analysts 7 Danesh Mistry, Darshan Shah, Hitesh Arora, Mamta Nehra, Nakul Doshi, Pratik Shah, Varun Gajaria, Vignesh Iyer
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total AUM | ₹7,692 crores | +1.7% QoQ; reflects calibrated retail-led growth and stabilization of the book. |
| Disbursements | ₹1,117 crores | +20.5% QoQ; driven by 21% growth in vehicle finance and steady Micro LAP scaling. |
| Net Interest Income (NII) | ₹209 crores | +16.1% YoY, +10.2% QoQ; expansion supported by lower borrowing costs and stable yields. |
| PAT | ₹8.3 crores | -21% QoQ; impacted by a ₹4.8 crore one-time wage code adjustment charge. |
| NIM | ~11% | Broadly stable; risk-based pricing and lower funding costs offset shifts to prime segments. |
| Gross Stage 3 (GNPA) | 4.06% | Upward trend noted but management highlights 50% lower delinquency in post-Jan 2025 cohorts. |
| Net Stage 3 (NNPA) | 1.76% | Reflects proactive provisioning and sale of a ₹135.73 crore stressed asset pool during the quarter. |
| Cost of Funds | 10.3% | -50 bps YoY; incremental borrowing costs dropped significantly to 9.1%. |
| Capital Adequacy (CRAR) | 41.4% | Significant headroom for growth; debt-to-equity remains low at 1.2x. |
Geographic & Segment Commentary
Vehicle Finance: This remains the core growth engine, contributing ₹1,087 crores to quarterly disbursements. Management has introduced “prime segment” lending and risk-based pricing to expand the addressable market while maintaining risk-adjusted returns. New underwriting standards implemented in Jan 2025 have reduced non-starter rates from 5.2% to 2.08%.
Micro LAP: AUM reached ₹128 crores with disbursements of ₹30 crores at yields of ~22%. Currently operational in 75 branches across Tamil Nadu, AP, Telangana, and Gujarat (pilot), focusing on self-employed borrowers with residential collateral. Asset quality is exceptional with only 6 out of 2,215 customers in the 1+ DPD bucket.
Company-Specific & Strategic Commentary
Credit Underwriting & Asset Quality: Implemented a comprehensive early warning system and tightened policy norms in Jan 2025, leading to a 50% reduction in delinquency for new cohorts (Slide 19). Higher CIBIL score customers (above 700) now constitute 89% of the book compared to 82% a year ago.
Digitization: Achieved 100% digital collection in Micro LAP and 80% adoption of e-agreements/e-NACH across the platform. Scorecard-based credit approvals and e-KYC are being rolled out to improve turnaround times and process excellence.
Distribution & Talent: Expanded presence to 448 branches across 23 states and upgraded several “micro branches” to full-fledged service centers. Hired Amandeep Singh Sandhu (ex-Cholamandalam) as COO of Vehicle Finance and plans to increase frontline sales staff by 30% in Q4.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Micro LAP AUM | Double by FY 2027 | Growth driven by expansion from 75 to more of the 448 existing branches and entry into new states. |
| Credit Cost | ~2.0% target | Long-term target as the cleaner post-Jan 2025 book becomes a larger portion of total AUM. |
| Leverage | 3.5x to 5.0x (Medium-term) | Management intends to gradually increase leverage from 1.2x toward industry standards to drive ROE. |
| Disbursement Growth | 20%+ QoQ momentum | Backed by a 30% increase in sales force and recovery in construction/infrastructure activity. |
Risks & Constraints
| Risk | Context |
|---|---|
| Asset Quality Legacy | While new book quality is high, the legacy portfolio continues to impact GNPA (4.06%), requiring ongoing monitoring and stressed asset sales. |
| Yield Compression | Entry into the “prime segment” has lowered disbursement yields to 17.2% from ~18%, though this is currently mitigated by lower cost of funds. |
| Micro LAP Scalability | While asset quality is currently high (6 delinquencies), the business is in early stages; scaling to Tier 3-5 towns may test credit models in new geographies. |
Q&A Highlights
Asset Quality & NPAs
- Question: What immediate steps are being taken to contain the rise in NPAs? (Nakul Doshi)
- Answer: The post-January 2025 book shows 50% lower delinquency; as this book replaces older loans, overall GNPA will naturally decline. We have also implemented a data-driven early warning system and strengthened collection infrastructure. (Randhir Singh)
Margin & Yield Outlook
- Question: How will the yield mix change with the expansion of Micro LAP? (Varun Gajaria)
- Answer: Vehicle finance yields will stay around 17% to protect NIMs, while Micro LAP yields remain high at 22%. As Micro LAP grows, it will provide a buffer to keep overall portfolio yields at or above 17%. (Randhir Singh)
Leverage & Capital
- Question: What level of leverage are you comfortable with given the 41% CAR? (Danesh Mistry)
- Answer: We are currently under-levered at 1.2x due to the housing subsidiary sale. We aim to reach 3.5x to 5.0x leverage common among peers, providing massive headroom for growth without needing fresh equity. (Randhir Singh)
Operational Costs
- Question: Why was PAT lower this quarter despite higher NII? (Jayesh Jain - self-clarified)
- Answer: Q3 included a one-time ₹4.8 crore impact from the change in the wage code. Excluding this, operating expenses remained stable at roughly ₹119-120 crores. (Jayesh Jain)
Key Takeaway
IndoStar Capital Finance delivered a quarter of strengthening momentum, characterized by a 20% sequential growth in disbursements (₹1,117 crores) and a transition toward a retail-centric model. While GNPA remains at 4.06%, management highlighted that the “new book” (post-Jan 2025) exhibits 50% better delinquency profiles, with high-CIBIL customers now comprising 89% of the portfolio. Profitability was temporarily dampened by a ₹4.8 crore one-time wage code charge, but NII grew 10% QoQ as incremental borrowing costs fell to 9.1%. Strategically, the company is pivoting toward Used Vehicle Finance and high-yield Micro LAP (22% yield), supported by a massive 41.4% capital adequacy ratio and low 1.2x leverage. With plans to double Micro LAP AUM and expand the sales force by 30% in Q4, IndoStar is positioned to aggressively scale its balance sheet while targeting a long-term credit cost of approximately 2%.
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