However, near term challenges await- (1) AUMs are likely to de-grow in FY21E in the absence of adequate disbursal opportunities, (2) stress is likely to crystallise in view of broader economic circumstances and significant moratorium %, and consequent provisions will limit earnings. These underpin our reduce rating (TP of Rs 253, 0.9xFY22E ABV). INDOSTARs 4Q performance was considerably below expectations as high credit costs on a/c of accelerated w/offs and COVID-19 related provisions wiped out profits. Asset quality was optically stable QoQ, aided by the accelerated write-offs. AUMs de-grew, led by the corporate book. The equity infusion by Brookfield is certainly a positive development, especially given the pedigree of the investor.) Not only does it augment the co.s capital and liquidity buffers and its debt-raising ability but it also bolsters long-term growth prospects.

Our NEUTRAL stance on INDOSTAR remains unchanged. The capital infusion will dispel concerns about the co.'s ability to cope with asset quality and liquidity issues, but it does not preclude further deterioration in asset quality. Commentary and broader economic conditions indicate that stress may continue to manifest. Elevated provisions may follow curtailing earnings. Post the capital raise, RoAE improvement will be further deferred. INDOSTARs 3Q operating performance (PPOP, -3/-21% YoY/QoQ) was in line. High provisions (~Rs 1.1bn, ~4% ann.) wiped out profits. Asset quality deteriorated in spite of high W/Os, and remains a concern. The proposed fund infusion is a positive. Maintain NEUTRAL with a TP of Rs 300 (1.0x Dec-21E ABV). The tender offer (at Rs 290) does set a floor in the near term.

Talent (and integrity) are intact, unlike some other stressed NBFCs. But INDOSTAR faces challenges on asset quality. This can affect liquidity, too, as the Indian NBFC experience over the trailing year shows. We've cut growth assumptions and hiked LLPs, resulting in a ~30% earnings cut and 340bps jump in overall GNPAs by FY22E. Even under our stress case scenario (~14% corporate slippage over FY20-22E and 11% loan CAGR), the stock trades for a mere 0.7xFY22E ABV. Indostar represents option value today. Equity value is volatile, but unlikely to evaporate. Upsides, on the other hand, look tantalising. BUY with a TP of Rs 330, 1x Sep-21E ABV. INDOSTARs 2QFY20 operating performance was ahead of estimates, due to sharp NIM improvement. Higher provisions dented earnings. GNPAs dipped QoQ but concerns persist on asset quality. Maintain BUY.

Our constructive stance on INDOSTAR is driven by increasing retailisation and opportunistic caution on the corporate segment. Indostar's talent is unquestionable, but it faces a severe reality check. We've adjusted growth and LLP assumptions to reflect macro stress, resulting in a ~13% earnings cut. Lumpy stress and losses in the RE book are not ruled out. These, and systemic liquidity issues, pose further risk. In spite of striking asset quality deterioration and an earnings miss, we maintain BUY on INDOSTAR with a TP of Rs 506 (1.5x Mar-21E ABV). Worse than expected asset quality outcomes appear to be priced in.

Opportunistic and tactile lending by an astute management along with increasing retailisation underpins our constructive stance on Indostar. While critics are wary of its real estate and structured finance exposure, calculated repayment rates and immaculate asset quality should dispel concerns. Current attractive valuations (<1x Mar-21E ABV) imply significant deterioration in corporate asset quality, which we believe is unlikely. We have reduced ABV to factor portfolio acquisition goodwill. We maintain BUY on INDOSTAR (TP of Rs 520, 1.5x Mar-21E ABV of Rs 347) after an in-line 4Q and, incredibly, an improvement in corporate asset quality.

Steady quarter; Acquisition of IIFL's CV financing business complete 4QFY19 PAT increased 83% YoY to INR741m, driven by healthy NII growth, higher upfronting of assignment income and controlled opex. The company completed the INR35.2b (INR22.4b on-book) acquisition of IIFL's CV financing business on 31st Mar'19, resulting in goodwill of ~INR3b. Excluding the acquisition, total AUM grew 8% QoQ to INR83.7b, largely driven by the VF portfolio. Disbursements in corporate finance rebounded from INR3-4b in the past...

IndoStar Capital Finance 16 April 2019 IndoStar Capital NBFC Traditionally a wholesale lender, INDOSTAR hired Mr Sridhar as Executive VC & CEO to lead its retail lending foray. Over the past few years, retail lending has gained traction and accounts for 42% of INDOSTARs overall loan book. In the corporate finance segment, INDOSTARs focus has remained on ~50 clients over the past few years, which has helped in better monitoring of accounts. However, in its SME lending book, INDOSTAR has witnessed an increase in the GNPL ratio to 3.2%. The companys other two businesses, vehicle and housing finance, have only commenced in last one year, and thus, yet to see the impact of seasoning of portfolio. These businesses have negligible NPLs. However, as the vehicle finance book scales up, we expect the GNPL ratio to reach 2% and credit costs of ~1%. We believe the company is better placed now and can focus on growth.

Initiate coverage with a BUY (TP of Rs 549, 1.5xMar-21E ABV of Rs 366). Promoted and run by professionals, Indostar Capital Finance (INDOSTAR) is an NBFC, with a presence spanning multiple segments (unlike other NBFCs with a monoline business). After commencing operations as a special situation corporate and developer financier, INDOSTAR managed to pull off a transition to retail lending (fashionable).

and increase the size of non-corporate loans sizeably going forward. In the next 5 years, it aims AUM mix of VF 35%, corporate loans 35%, SME 15% and housing loans 15%. Over the FY18-22E period, we anticipate AUMs to grow at 50% CAGR which would be mainly driven by vehicle finance loans. Operating leverage set to play out in the longer run, boosting return profile of the...

(valued at 1.7x FY20E ABV). IndoStar has embarked on a transformational journey and with the right mix of people, product portfolio, processes and the required infrastructure, we believe the business model is on the right growth path. We expect IndoStar Capital to report (a) strong earnings profile (38% / 22% CAGR in revenue / earnings over FY18-20E), (b) limited asset quality risks (given the history of near zero NPAs), and (c) superior returns profile (RoA at 2.7%, RoE at 10%+ by end-FY20E). Healthy capital position (CAR at 28%+) will supplment sturdy 45% CAGR in AuM over FY18-20E. Further, proficient senior management with an element of skin in the game through ESOPs and superior board...

Indostar Capital Finance Ltd. (ICFL) is a leading non-banking finance company (NBFC) registered with the Reserve Bank of India as a systemically important non-deposit taking company. It is a professionally managed and institutionally owned organization which is primarily engaged in providing bespoke Indian Rupee denominated structured term financing solutions to corporate and loans to small and medium enterprise (SME) borrowers in India. ICFL recently expanded its portfolio to offer vehicle finance and housing finance products. Although, company operated in a challenging credit environment in the initial years of our business operations business has experienced growth since the commencement of operations in 2011. Between fiscal 2013 and 2017, its total credit exposure, total revenue and net profits grew at a CAGR of 30.0%, 31.4% and 23.7% respectively. Its corporate lending business which was at 99.8% in FY 2015 declined to 76.8%...

lending, vehicle financing and housing financing. As of February 28, 2018, the company had 71 retail branches across India. As of December 31, 2017, lenders of the company included 14 public sector banks, 13 private sector banks, 21 mutual funds and 4 insurance...

Incorporated in 2009, Indostar Capital Finance Limited (Indostar) is a professionally managed and institutionally owned, leading NBFC which is primarily engaged in providing structured term lending to corporates and loans to SME borrowers in India. The company has recently expanded their portfolio to offer Vehicle Finance and Housing Finance products. The Promoter of the company is Indostar Capital which is...

IPO NOTE

Indostar Capital Finance (Indostar) commenced operations in 2011. It is primarily engaged in providing structured financing solutions to corporate a well as SME borrowers in India. In 2017, it started providing housing finance through its wholly owned subsidiary - IndoStar Home Finance Pvt Ltd (IHFPL) and also began vehicle financing. The promoter of the company is Indostar Capital (pre-issue ownership - 91.55%), which is promoted by Indostar Everstone and Everstar Holdings Pte Ltd. As on December 31, 2018, Indostar's gross loan portfolio was at | 5171.7...

Outlook & Valuation: At the upper end of the price band, ICFL is valued at 2.2x of Q3FY18 book value (Pre-IPO) and on post dilution basis at 1.9x of Book value. The strong sponsorship of Everstone and other shareholders, along with a wellcapitalised balance sheet and an experience and focused management provide an excellent base for t..

Indostar Capital Finance Limited (ICFL), established in 2009, is a Recommendation leading NBFC lending to mid-to-large sized corporates in manufacturing, services and infrastructure industries and real estate Price Band (per share) Rs570-572 developers of residential and commercial building projects....