Indostar Capital Finance Ltd. share price target

PAT rose ~3% YoY; asset quality improved, aided by the ARC transaction Indostar Capital Finance (IndoStar) reported a mixed quarter.

Indostar Capital Finance (Indostar) reported a mixed quarter. While business momentum was reasonably good, lower collection efficiency and higher delinquencies in the VF portfolio led to higher credit costs in 3QFY25.

Indostar Capital Finance (Indostar) reported healthy business momentum in 2QFY25. Key highlights: consolidated disbursements grew ~36% YoY to~INR17.2b and retail AUM rose ~35% YoY to ~INR99b.

Indostar Capital Finance (Indostar) reported healthy business momentum in 1QFY25. Disbursements grew ~46% YoY to ~INR16.3b and Retail AUM grew ~34% YoY to ~INR92b.

Indostar Capital Finance (Indostar) reported an improvement in business
momentum during the quarter

Indostar reported an operationally healthy 3QFY22. Key highlights were: a) strong momentum with the highest-ever quarterly disbursements of INR14.6b, up 31% QoQ; b) sustained investments in branches (+65 branches in 3Q to 343) and employees (+395 in 3Q to 2,635), with the company further strengthening its presence in the North, East and North-East regions; c) improvement in reported NIMs by 110bp QoQ/180bp YoY to 6.4%; and d) elevated credit costs...

Update Note

Pearl in an oyster

We had hosted Investor Conference on 29th & 30th September 2021 where 15 companies participated at our Arihant Rising Star's Virtual Summit. Key takeaways from the conference are as follows:...

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...