Indostar Capital Finance LtdQ2 FY23Finance

Indostar Capital Finance Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 3

→IndoStar Capital Finance aims to grow its assets under management (AUM) over the next two years by more than 2.5 times.
→Stand-alone AUM target is INR10,000 crores, with overall consolidated AUM guidance around INR15,000 crores.
→Disbursements for FY24 are targeted at INR4,400 crores, focusing on the used commercial vehicle segment, especially in Tier 3 and Tier 4 markets.
→The company expects continued growth in loan disbursements, with Q1 FY24 disbursements already showing a 33% sequential increase.
→Housing finance segment expects significant growth, with a 7% QoQ AUM increase and plans to expand customer base in small towns and semi-urban geographies.
→Focus on profitable growth with an expected return on assets (ROA) around 2%, operating expenses near 4%, and credit costs between 1.5% to 2%.
→Growth will be supported by a healthy liquidity position and improved funding profiles, including term lending and NCD issuances.

Category 2

→IndoStar aims steady growth with no change to the earlier guidance for FY24 disbursements of INR4,400 crores (Page 12).
→Focus on Tier 3/4 markets and used commercial vehicle lending with yields around 8% on incremental book.
→Operating expenses expected around 4%, with a target to reduce slightly below 4% over medium term (Page 14).
→Credit costs guided at 1.5% to 2%, with historical performance close to 1.2%-1.25% (Page 14).
→ROA expected around 2% with potential to rise to 2.5-3% over time; ROE targeted in the teens (14%-15%) (Page 11).
→Leverage expected to increase gradually from current ~2x to 3x-4x over 5-6 quarters to boost ROE without compressing ROA (Page 11, 8).
→Corporate book rundown planned to improve overall asset quality and profitability (Page 15-16).

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Yes

→IndoStar Capital Finance has actively raised funds via debt in Q1 FY24, including a maiden NCD issuance through private placement, diversifying funding sources.
→The company raised about INR1,215 crores in Q1, contributing to a healthy liquidity position with cash and cash equivalents at INR1,151 crores.
→Current funding cost is around 11.3%, with expectations to reduce cost from Q3 onwards by engaging more with banks after a year’s hiatus.
→Management is comfortable with debt-equity leverage up to 4x, with current leverage at about 1.9x, indicating scope for further borrowing to support growth.
→The company plans to continue raising funds primarily from banks in various forms like term lending, short-term loans, and securitization, rather than relying heavily on NCDs.
→No explicit mention of imminent equity fundraising; focus appears on debt to fund AUM growth targets and operations.

→The document does not explicitly mention a current or expected order book or pending orders for IndoStar Capital Finance Limited.
→The focus is primarily on loan disbursements, asset under management (AUM), and portfolio rundown.
→Q1 FY24 disbursements stood at INR 190 crores for loans.
→The company expects to disburse INR 4,400 crores for the year, with continued emphasis on used commercial vehicles and affordable housing sectors.
→There is an ongoing reduction and resolution focus on the corporate book (about INR 1,100 crores remaining), which is lumpy with five customers.
→The management is implementing strategies to reduce this corporate exposure without impacting profitability.
→The outlook for the commercial vehicle industry remains strong, which supports growth prospects.
→No specific figures related to "order book" or "pending orders" are discussed in this earnings call.

Yes

→The transcript does not explicitly mention any current or future capex, capital investment, or strategic investment plans by IndoStar Capital Finance Limited.
→Focus appears to be on business growth through increasing AUM, expanding disbursements (especially in used commercial vehicles and affordable housing finance), and improving operational efficiency.
→Management is working on technology initiatives such as sales, collection, and customer apps to improve productivity and customer experience.
→There are ongoing explorations for new products and strategies to generate additional revenue and improve yields, indicating possible strategic moves but without specific capital outlays stated.
→IndoStar Home Finance is focused on expanding lending in Tier 2 and Tier 3 markets, supported by technology and branch infrastructure investments (likely operational capex).
→Discussions on collaborations, e.g., with JM Financial for housing finance subsidiary, are ongoing but no completed investments announced yet.

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