Indostar Capital Finance Limited

Indostar Capital Q1 FY24 Earnings Conference call highlights:

• Focused on used commercial vehicle lending and affordable housing sector, and we have
  kept our focus unwavered.

• Focus remains on the Tier 3 and Tier 4 market, which contributes to the bulk of our volumes.

• QoQ net interest margin expanded by about 50 basis points to reach about 6.5%

• Our profit after tax for the quarter was at about INR39 crores, an increase of 50% compared to
  the adjusted PAT of the previous quarter, which was at about INR26 crores.

• Used CV is not seeing any margin compression where Indostar operates (Tier 3 and 4 market), demand is pretty good and do not see margin squeeze in the immediate quarter or in the immediate future.

• Operating only up to the 12-year-old vehicle, scrappage policy comes, which will be a positive momentum to the industry, for the used vehicle sale will go further faster. We are very much protected against whatever is going to happen.

• Onset of monsoon slows down new CV sales due to certain aspects. But we didn’t see any slowdown in the used commercial vehicle industry.

• Management is comfortable leveraging to 4x in terms of the debt versus equity in Five quarters, six quarters. (Currently at 1.9x, 2x leverage)

• We have now only recently started approaching the banks, which we had stayed away from for almost a year. It’s only after the Q4 results that we started going to the banks.

• Opex will go up but in a muted manner as revenue goes up and reduction in the interest cost will improve ROA. Leverage increase will improve ROE. (Down the line will be comfortable with 2.5 – 3% ROA and ROE 14 -15%)

• Targeting AUM of 13000 crs by FY25 (Currently at 8062 crs)

• CVs are very short-seller book – 30, 39-month average.

• Yields are improving as we are not doing deals below a particular rate. The old book is at a lower rate is running off, and the new book is getting
  added at a much higher rate.

• Expected disbursement will be approx 4400 crs this year, NIM of 8% on incremental book.

• Focusing on reducing the NPA levels to single digits in the SME book and run down the book (pure LAP Portfolio).Focus today is to reduce the Stage 3 percentage, then come back to the market with a clear strategy of lower ticket slab at around INR20lakhs, INR25 lakhs.

• On Corporate side management is very serious to reduce it without impacting P&L. Mgt mentioned that there are certain commitments which we are honoring on their disbursement. But we are
  working on methodologies so that these can get resolved. Our assessment is we will be able to find a very good solution, probably very fast.

• Yield on SME book is around 13%. Corporate book is at around 15%.

Disclosure : Same as above.