Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Indostar Capital Finance Ltd (BOM:541336, Financial) reported a significant growth in disbursements for Q1 FY25, reaching INR1,627 crores, a 45.8% increase over the previous year.
- The company's net interest income increased by close to 29% year-on-year, reaching INR186 crores.
- The company has made significant investments in technology, enhancing its end-to-end loan origination process.
- Indostar Capital Finance Ltd (BOM:541336) has successfully reduced its GNPA to 4.19% on a consolidated basis.
- The company is expanding its operations in Tier 3 and Tier 4 cities, focusing on the used commercial vehicle segment, which is expected to grow due to rural demand.
Negative Points
- The company's GNPA and NNPA metrics have increased in both the commercial vehicle and housing finance businesses.
- The cost of new vehicles has been rising, making it unaffordable for some retail players to enter the new vehicle segment.
- The company is facing challenges in raising bank loans for its NBFC segment, although progress is being made.
- There is a slight increase in delinquencies expected in the first quarter, which may normalize post-monsoons.
- The company has a legacy book of INR211 crores that will take two years to resolve, potentially impacting credit costs.
Q & A Highlights
Q: Collection efficiencies and GNPAs have increased in both the commercial vehicle and housing finance business. Can you provide more details on this and the expected correction timeline?
A: Typically, April and May are dull months for CV due to elections, but ratios have been maintained. We expect normalization post-monsoons, around September. For housing finance, the increase in 90-plus days past due is about 10 bps, which is expected to moderate in the second and third quarters.
Q: The HFC has been successful in raising bank loans, but the NBFC has not. Can you provide more details on this?
A: We raised about INR730 crores in the current quarter, mostly from banks. We have several bank sanctions in the pipeline that will materialize in August and September. We are also working on a public issue of NCDs to raise INR150 plus INR150 crores.
Q: With the refocus on the SME business, will this increase the cost-to-income ratio, or is there any operating leverage from the existing branch network?
A: We are leveraging our existing branches, so we do not expect a significant increase in the cost-to-income ratio. There will be some increase due to additional manpower, but it will be manageable.
Q: There is a drop in ATS in the CV finance presentation. Is there a change in disbursement policy?
A: We are now focusing on small commercial vehicles and pickups, which have an average ticket size of INR4 lakhs. This shift is due to the large consumption-driven economy and the uptick in the rural market.
Q: The GNPA and NNPA metrics in housing finance have increased. Is there any stress buildup in this segment?
A: The increase in GNPA is marginal, about 10 bps, and is expected to moderate in the coming quarters. We are confident that asset quality will remain stable or improve.
Q: What is the trajectory of credit costs and ECL provisions in the coming quarters?
A: We expect credit costs to remain around 1.5% to 2%. The new SME book performance will be evaluated next year, but it is expected to be a low NPA product.
Q: What is the targeted share of housing finance in the consolidated AUM mix?
A: The current mix will be maintained for the year. Housing finance typically picks up in the second and third quarters, and we are confident of meeting our targets.
Q: Can you elaborate on the cost of borrowings and when the benefits will start flowing in?
A: The cost of funds has started coming down. We expect the trend to continue, with incremental borrowing costs falling from 12.7% to around 10.5%. The benefits will be more visible in the next two to three quarters.
Q: What is the outlook for total branch and employee additions for the full year?
A: We plan to increase the number of branches from 391 to around 460-470 by the end of the year. Employee additions will be aligned with this expansion.
Q: What is the expected ECL provisioning for the CV business?
A: We are comfortable with maintaining a 50% provisioning at stage three. This is a stable and manageable level for us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
