Indostar Capital Finance Ltd (INDOSTAR) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, you have been connected to IndoStar Capital Finance Limited Q2 FY '27 earnings conference call. Please stay connected, the conference will begin shortly.
Moderator: Ladies and gentlemen, good day, and welcome to IndoStar Capital Finance Limited Q2 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Ayushi Gupta. Thank you, and over to you, ma'am.
Ayushi Gupta (MSJ InTime Private Limited): Thank you. Good afternoon, everyone. I welcome you all to the Q2 and H1 FY '27 earnings conference call for IndoStar Capital Finance Limited. To discuss this quarter's performance, we have from the management Mr. Randheer Singh, Managing Director and Executive Vice Chairman, and Mr. Jayesh Jain, Chief Financial Officer. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to the management for their opening remarks, and then we can open the floor for Q&A. Thank you, and over to you, sir.
Randheer Singh (Indostar Capital Finance Ltd): Thanks, Ayushi. Good afternoon, everyone, and thank you for joining us today. I am Randheer Singh, Managing Director and Executive Vice Chairman of IndoStar Capital Finance Limited. On behalf of the entire IndoStar team, I extend a warm welcome to all of you on our Q2 and H1 FY '27 earnings conference call. We appreciate your continued support and confidence in our company. I trust you have had an opportunity to review our financial results and investor presentation, which have been uploaded on our website and filed with the stock exchanges. Before discussing our business performance, let me set the context with the macro indicators most relevant to our business, both those that affect us directly and those that work through our customers and segments. The Indian economy continues to demonstrate resilience
Randheer Singh (Indostar Capital Finance Ltd): quarter, despite an uncertain global backdrop characterized by geopolitical developments, elevated commodity prices, and volatility across financial markets. Domestic economic activity remained healthy, supported by resilient consumption, sustained infrastructure spending, and continued investment activity. Reflecting the strength of these underlying trends, the Reserve Bank of India revised its FY '27 GDP growth forecast upwards to 7.1% from 6.1 from 6.7% earlier. At the same time, inflationary pressures resurfaced during the quarter. CPI inflation increased to 4.82% in August 2026, driven largely by food and fuel prices. In response, the MPC committee increased the repo rate by 25 basis points to 5.50% and adopted a calibrated tightening stance. While interest rates have moved modestly higher, overall credit demand across the economy remains healthy and broad-based. The quarter was also characterized by weather-related challenges. Uneven monsoon distribution and strengthening El Niño conditions created concerns around agriculture activity and rural demand in certain regions. However, urban demand remained resilient, and the festive season contributed positively to consumption trends, trade activity, and transportation demand across several markets. From a credit demand perspective, the operating environment remained constructive. Non-food bank credit grew 18.8% year-on-year in August 2026 and strengthened further to 19.4% by September end, reflecting healthy demand across retail, agriculture, industry, and service segments. Credit growth to the services sector remained particularly strong at 24.3%, supported by lending to trade, NBFCs, and commercial real estate. Looking specifically at the vehicle finance ecosystem, demand conditions remained supportive during the quarter. Transportation activity continued to benefit from infrastructure execution, replacement demand, and healthy logistics activity. Vehicle finance credit within the NBFC sector grew 15.5 15.4% year-on-year as of August 2026, reflecting healthy activity levels across transportation-linked segments. Industry outlook also remained encouraging. ICRA expects NBFC vehicle finance portfolios to continue growing at a healthy pace over FY '26 and FY '27, supported by increasing financing penetration and replacement demand, while lenders continue to focus on improving portfolio quality and risk-adjusted returns. ICRA has also highlighted the growing role of pre-owned vehicle financing, with the share of used vehicles in NBFC portfolios expected to exceed 41% by FY '27. Against this backdrop, our focus during the quarter remained firmly centered on accelerating growth while maintaining portfolio quality. As the operating environment continues to evolve, we remain committed to building a stronger and more resilient franchise through disciplined underwriting, prudent risk management, and consistent execution. Over the last several quarters, we have undertaken a number of initiatives to strengthen customer selection, enhance credit assessment, and improve portfolio monitoring capabilities. We continue to refine our underwriting framework through proprietary scorecards, product-specific risk filters, and system-driven decision-making processes. At the same time, we have strengthened our monitoring architecture through enhanced early warning systems, technology-led portfolio surveillance, and a continued focus on collection effectiveness. These efforts are directed towards improving the quality of the new originations, enhancing portfolio resilience, and creating a stronger foundation for sustained profitability. We are encouraged that the benefit of these actions are increasingly visible across customer quality metrics, portfolio behavior, and overall asset quality trends. Let me now move to our operating performance beginning with disbursements. During the quarter, retail disbursements stood at Rs. 1,399 crore compared to Rs. 1,235 crore in the previous quarter,
Randheer Singh (Indostar Capital Finance Ltd): and rupees 927 crore in the corresponding period last year. For H1 FY27, retail disbursement stood at rupees 2,634 crore. Retail assets under management stood at rupees 8,459 crore as of September 2026 and now accounts for 97% of our overall AUM. Year-on-year, we grew our overall disbursement by 51%, 47% in vehicle finance business, and 174% in MLAP business. In our Q4 FY26 earnings call, we share the target of 35% CAGR growth in disbursements over 3 years, and we are tracking well on that target. We had also mentioned about initiating significant steps for future growth in earlier earnings calls. Following is the update on the same. Number one, significant increase in ground sales force in vehicle finance business. Our field sales force number has increased from about 1,235 to 1868 over the last 1 year, representing a growth of about 51%. We will continue to invest further in field sales force to take full advantage of our large pan-India branch network. Second, verticalization of our sales team in vehicle finance. All our four national sales managers are on board for CV, PV, SE, and CE verticals and are building significant capacities and capabilities in each of these verticals for future growth. Along with NSMs, we have also onboarded the state-level leaders for each of these verticals and will add further managerial capacity in the next 2 quarters. Third, in Q4 FY26 earnings call, we had guided for 100 branch additions over the next 3 years. We are making steady progress, and number of branches have increased from 454 to 475 in the last 2 quarters. Fourth, alignment of our channel payouts and proactive refinements in line with the industry trends. Fifth, significant improvement in turnaround time, customer and channel experience due to ongoing improvement in loan journey simplification, document simplification, data science-led scorecards, and digitization. These improvements have led to significant increase in volumes in passenger vehicle segment, which is very TAT-sensitive. Our disbursements in passenger vehicle segment has grown by almost 75% over the last 1 year. While being growth focused, our priority continues to be on improving the quality of growth. Over the last several quarters, we have consciously focused on sourcing better quality customers, enhancing asset allocate enhancing asset selection, and maintaining disciplined underwriting standards across all business segments. Our credit quality has shown significant improvement since the start of the tightening period, beginning Jan 2025. 30+ delinquency on disbursements done in period from Jan '26 to September '26 as of 30th September '26 is down by 71% compared to delinquency on disbursements done from Jan '24 to September '24 as on 30th September '24. The improvement in customer quality continues to be reflected across our portfolio. The share of prime customers, defined by us as CIBIL scores of 725 and above, in our portfolio has improved to 85% in Q2 FY27 from 80% in Q2 FY26. Additionally, the number of borrowers with CIBIL scores of 700 and higher has reached 95% in last quarter's disbursements, reflecting the cumulative impact of tighter customer selection and stronger underwriting standards. Early delinquency levels have remained stable at around 2.4%
Randheer Singh (Indostar Capital Finance Ltd): reinforce our confidence that the actions taken over the last several quarters are helping us build a stronger and more resilient portfolio. Another encouraging trend is the increasing contribution of the portfolio originated after the tightening of underwriting standards in vehicle finance business. As the share of the newest portfolio continues to increase, we are seeing a clear improvement in overall portfolio behavior. A significant portion of the residual stress continues to remain concentrated within the older portfolio originated pre-Jan 2025. Our pre-tightening portfolio contribution has reduced from 65% in Q2 FY '26 to only 26% in Q2 FY '27. This is in line with the guidance we provided in Q4 FY '26 earnings call. We've also guided that the book originated under new underwriting will be 85% of the overall book in Q4 FY '27, and we are well on our way to meet the guidance. As this legacy book continues to run down, and the new book becomes a larger proportion of the overall portfolio, we expect continued sequential improvement in delinquency metrics, credit cost, and significant improvement in profitability over the coming quarters. Our vehicle finance portfolio also continues to become increasingly diversified across commercial vehicles, passenger vehicles, construction equipment, and farm equipment, reducing concentration risk and helping us build a more balanced and granular franchise. Over the last 1 year, our MHCV disbursement share has come down from 31% to 27%, and passenger vehicle share has gone up from 23% to 31%. Let me now turn to our micro LAP business, which continues to scale steadily and remains one of our key strategic priorities. Disbursements in Q2 FY '27 were Rs. 74 crores, up 174% year-on-year. AUM closed the quarter at Rs. 280 crores, up 177% year-on-year. Importantly, this growth continues to come with strong asset quality. 99.6% of the portfolio is current, and 90+ DPD is only 0.18%. While the MLAP book is not seasoned as yet, we've made a very good start on portfolio quality front. We continue to focus on self-employed borrowers and small business owners while maintaining conservative underwriting standards. Our average ticket size on MLAP disbursements has moved up to about 8.9 lakhs in September from 6 lakhs a year back, in line with our communication in last quarter about ticket size stabilizing around 10 lakhs. We continue to consciously work towards increasing the average ticket size in a LAP business even if that means accepting slightly lower yields. Over the last few months, we started building an alternate business channel covering connectors and DSAs, and in the last few months, contribution from these channels is in the range of 20% to 25% range. Our weighted average loan to value remains around 40%. We're maintaining disbursements yield of about 20% besides upfront processing fees. The journey in the LAP business remains fully digital, with e-application, e-agreement, e-NACH at 100%. Our collection in this business is 100% digital and cash collection is 0. We continue to expand the franchise in a calibrated manner across selected markets while leveraging our existing distribution infrastructure and operating platform. Our objective remains to build scale gradually while ensuring that portfolio quality remains at the center of every growth decision. As communicated in previous earnings call, Bihar and Uttar Pradesh did go live in August and September. And additionally, we also gone live in West Bengal. We now operate from 154 co-located branches across nine states and one Union Territory against 71 branches in two states 1 year back. Encouraged by our early portfolio performance, we are now working towards launching our LAP business in Karnataka and Madhya Pradesh over Q3 and Q4. This is in line with our communication in earlier earnings call that while we have the opportunity to launch the business in all 24 states and Union Territories we operate in, we will follow a calibrated expansion approach. We plan to consolidate in these states prior to our next phase of
Randheer Singh (Indostar Capital Finance Ltd): In our efforts to build a future-ready organization, I would like to share an update on data science and AI initiatives. In February 2026, we set up a dedicated data science practice with the ultimate objective of deciding every credit and collection decision based on data along with extensive usage in other business and support areas. Our bureau-based score card for used car and SCV now drives in-principle credit approval and straight-through processing. We have reached STP's rate of 74% in used car business and 68% in SCV. Portfolio quality has held up well in these products post-implementation of score cards. In other VF products, for now, we are using custom-built score cards for hard rejections instead of approval. In collections, we now have a model for every stage of delinquency, from predicting bounces among customers who are current, but have a high chance of bouncing by the due date, to propensity to pay in the highest, in the higher DPD buckets. We have embedded bureau risk triggers into these models, so our customers' behavior with other lenders feeds into how we prioritize them. Each model sorts customers into high, medium, and low risk, so that our collection call center and team knows exactly where to focus. We have also introduced AI bot calling for preemptive and bucket X customers. The bots are performing on par with our human callers, which gives us a clear opportunity to optimize collection cost. We also built a model that predicts fresh NPAs six months ahead with very high degree of accuracy. Over the next two quarters, we will roll out a self-service AI-enabled BI layer for our business teams, a settlement model to decide whom to settle and at what price, an acquisition score card for the new cars, MLAP, farm equipment, and construction equipment business. We will continue to invest in data science team and build capacity for future growth. In addition to the data and AI-led initiatives, we are reinforcing our collection field force with a separate approximately 400-strong team dedicated to hard buckets. This will enable sharper focus on and better resolution of higher DPD accounts. Overall, we see encouraging signs of the progress across both of our core businesses. The quality of customer acquisition continues to improve, portfolio performance remains stable, asset quality indicators are moving in the right direction, and actions undertaken over the last several quarters continue to strengthen the overall resilience of the business. As we move ahead, our priorities remain unchanged. We will continue to focus on disciplined underwriting, portfolio quality, collection effectiveness, and sustainable, profitable high growth, while ensuring that risk management remains central to every business decision. Our focus over the last several quarters has not only been on growing the business, but on building a stronger and more sustainable earning profile. The improvement in customer quality, lower non-starter ratios, stable early delinquency trends, and better performance of the newer vintage gives us the confidence in the long-term profitability potential of the franchise. Let me now touch upon our progress towards the long-term objectives that we had laid out for the business. Over the last 18 months, a significant amount of effort has gone into strengthening the foundations of the franchise. We have improved customer selection, enhanced underwriting standards, invested in technology-led monitoring capabilities, strengthened collection infrastructure, and diversified the portfolio across customer segments and asset categories. At the same time, we have continued to invest in our distribution capabilities, our branch network expanded to 475 branches during the quarter, and we remain focused on deepening our presence across existing and new markets. Alongside this, we continue to invest in talent, analytics, and operating infrastructure to support sustainable growth over the coming years. Our vehicle finance business today is materially stronger than it was a couple of years ago. The quality of customer acquisition and portfolio continues to improve. Similarly, in micro-LAP, we continue to build a scalable, secured lending franchise while maintaining a strong focus on portfolio quality. We remain encouraged by both the growth trajectory and portfolio performance of the business. Looking ahead, while we remain mindful of the external uncertainties, including inflationary pressures, geopolitical developments, and weather-related disruptions, our priorities remain unchanged. We will continue to focus on disciplined execution, prudent risk management, and sustainable profitable growth. The progress made across customer quality, asset quality,
Randheer Singh (Indostar Capital Finance Ltd): liquidity management, and business diversification provides us confidence that IndoStar today is operating from a position of far greater strength and resilience. We believe the foundation built over the last several years position us well to participate in the opportunities ahead while continuing to create long-term value for all our stakeholders. We are satisfied with the progress we are making towards targets shared with you in Q4 FY '26 earnings calls, which was 35% CAGR disbursement growth over the next three years and PAT of 450 to 500 crores in FY '29. With that, I will now request Jayesh to take you through the financial performance in greater detail.
Jayesh Jain (Indostar Capital Finance Ltd): Thank you, Randhir. Good afternoon, everyone. Let me now take you through our performance for Q2 and H1 FY '27. First and foremost, our asset under management stood at INR 8,459 crore as of September 30, 2026. Retail AUM stood at INR 8,204 crore, and now accounts for 97% of our overall AUM, reflecting the continued progress in building a granular and diversified retail franchise. Disbursements for the quarter stood at INR 1,399 crore while H1 FY '27 disbursements stood at INR 2,634 crore. Even as we remain focused on the growth, our emphasis continues to be on maintaining profit portfolio quality and improving risk-adjusted return. In vehicle finance, disbursements stood at INR 1,325 crore during the quarter while AUM stood at INR 7,923 crore. We continue to focus on building a more diversified portfolio across commercial vehicles, passenger vehicles, construction equipment, and farm equipment while maintaining disciplined underwriting standard and profitability. Our customer quality metrics continue to improve. The share of prime customers, which is a CIBIL score of 725 and more in our portfolio increased to 85% while the non-starter ratio remained low at 1.7%. Early delinquency trend also remained stable at approximately 2.4%, reflecting the benefits of the underwriting measures implemented over the last several quarters. In micro LAP, we continued to witness healthy momentum during the quarter. Disbursements stood at INR 74 crore while AUM increased to INR 280 crore. We remain encouraged by the growth trajectory of the business, and more importantly by the quality of the portfolio being built. The business continues to be characterized by strong collateral quality, conservative underwriting standards, and disciplined customer selection. The weighted average LTV remains below 40%, average ticket size has increased to 8.9 lakhs, and 98% of the portfolio continues to be backed by residential collateral. Asset quality within the business remains strong with gross Stage 3 assets of only 0.18%, providing confidence regarding the long-term scalability and sustainability of the franchise. Moving to the liability side, during the quarter, we continued to strengthen and diversify our borrowing profile. Our weighted average cost of borrowing reduced to 9.7% while incremental borrowing cost stood at 9.1%. The continued improvement in our borrowing profile reflects increasing lender confidence, diversification of funding relationships, and the overall strengthening of the franchise over the last several quarters. During the quarter, we also did a direct assignment transaction of our VF portfolio amounting to INR 132 crore. We ended the quarter with liquidity of INR 827 crore and continue to maintain a comfortable ALM position across all maturity buckets. From a capital perspective, our balance sheet remains well-capitalized. Our capital adequacy ratio stood at 36% as of September 30, 2026, providing substantial headroom to support future growth opportunities. Coming to asset quality, for the company as a whole, asset quality indicators continued to remain strong encouraging during the quarter. Gross Stage 3 for the company improved to 4.5% compared to 4.8% in the previous quarter while net Stage 3 improved to 2.4% from 2.5%. As discussed earlier, a significant portion of the residual stress continued to remain concentrated within the older portfolio. At the same time, the performance of the customer acquired under the revised underwriting framework remains significantly better than historical cohorts and continue to provide confidence in the long-term credit outlook of the portfolio. Collection performance remained stable during the quarter, and we continue to see encouraging trends across customer quality, delinquency behavior, and portfolio performance. Coming to the financials, net total income for the quarter stood at INR 243 crore compared to INR 190 crore in the corresponding period last year. Pre-provision operating profit stood at INR 109 crore during the quarter, reflecting stable operating performance and continued business momentum. In Q4 FY '26, we had created a precautionary management overlay of INR 49 crore on vehicle finance book against the potential impact of West Asia crisis and higher fuel prices.
Jayesh Jain (Indostar Capital Finance Ltd): contained, early delinquencies well below last year, and loans written after the price increase are performing better than the earlier cohort. With the stress not materializing, and our recalibrated ECL model adequately covering actual losses, we have released the overlay of, overlay of rupees 49 crore in Q2 FY27, while continuing to monitor the situation closely. The overall ECL percentage as, as a percentage of total book reduced from 5% to 4%. With this, the revised impairment and credit costs for the quarter stood at rupees 96 crore, compared to rupees 81 crore in the previous quarter. Profit after tax for the quarter stood at 13 crore compared to rupees 11 crore in the corresponding period last year. For H1 FY27, net total income stood at rupees 460, 65 crore, while profit after tax stood at rupees 25 crore. While reported profitability continues to reflect the legacy portfolio and provisioning requirement, the underlying operating performance remains healthy. As the contribution of the newer book continues to increase and the legacy portfolio runs down further, we expect the benefit to be reflected in the lower credit cost and improved profitability over, the time. Overall, the balance sheet today is significantly stronger than it was a few years ago. Improving customer quality, stable portfolio performance, a stronger liability franchisy, healthy liquidity, and robust capital adequacy positions us well for the next phase of the growth. With that, we would be happy to take your questions. Thank you.
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