Indostar Capital Q3 Results Review - Improvement In CV Business Momentum; Sell-Downs In SME: Motilal Oswal

Motilal Oswal Report

Indostar Capital Finance Ltd. reported an improvement in business momentum during the quarter. The key highlights:

1. Q3 FY24 disbursements rose ~6% QoQ to ~Rs 13.5 billion;

2. it invested in human capital (added 185 employees in Q3, taking the total count to ~3,700);

3. the commercial vehicle segment contributed ~83% to the retail disbursement mix; and

4. asset quality improved with gross stage-III declining ~140 basis points QoQ (including sell-downs in small and medium enterprise).

Valuation and view

Indostar has strategically prioritised the expansion of its loan book in the used CV and affordable housing finance segments. It anticipates that a reinforced management team, enhanced processes, and a favorable economic climate will serve as catalysts for growth in these segments.

With the sell-downs of stressed Corporate and SME loans to asset reconstruction company, both of these segments now contribute only ~14% of the total assets under management mix. It has made conservative provisions on stressed loans, and we expect credit costs at ~1.2 in each of FY25 and FY26.

Over the last two quarters, Indostar has made some sound business decisions, which can help this franchise make a turnaround. The risk-reward is favorable at 0.7 times FY26E price/book value.

We have a 'Buy' rating on the stock with a target price of Rs 245 (based on 0.9 times FY26E book value per share).

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