Indostar Capital Q2 FY27 Earnings Call — Analysis (NSE: INDOSTAR)

IndoStar delivered 51% YoY disbursement growth to ₹1,399 Cr in Q2FY27 with PAT of ₹13 Cr, reiterating its FY29 PAT target of ₹450–₹500 Cr as the legacy book runs down.

5 Nov 2026 · Analysis by Alpha Inflection

Result quality: stable — Results context unavailable. Management sentiment: optimistic.

The take

Q2FY27 Net Total Income ₹242 Cr ( +27.4% YoY ) . New guidance — FY29 retail disbursements cagr over… 35% CAGR . New story: Legacy book runoff and credit cost normalization .

Results

Q2FY27 disbursements grew 51% YoY to ₹1,399 Cr and Net Total Income rose 27% YoY to ₹242 Cr, while PAT stood at ₹13 Cr and Gross Stage 3 improved 30 bps QoQ to 4.5%.

Financial highlights

Guidance

Management reiterated a 35% 3-year disbursement CAGR, normalized FY28 credit costs of 2.0–2.5%, 2% ROAA from H2FY28, and FY29 PAT of ₹450–₹500 Cr.

What management committed to

• We are satisfied with the progress we are making towards targets shared with you in Q4 FY26 earnings calls, which was 35% CAGR disbursement growth over the next 3 years. — 35% CAGR, FY29
• We are satisfied with the progress we are making towards targets shared with you in Q4 FY26 earnings calls, which was PAT of INR450 crores to INR500 crores in FY29. — INR450 crores to INR500 crores, FY29
• We had also guided that the book originated under new underwriting will be 85% of the overall book in Q4 FY27, and we are well on our way to meet that guidance. — 85%, Q4FY27
• We would expect our normalized credit cost to remain between 2% to 2.5% [in FY28]... In fact, you'll start seeing that reduction from Q4 quite prominently. — 2% to 2.5%, FY28
• We do want to target 2% ROAA from H2 FY28 because by that time, most of our old book would have run off. — 2%, Q3FY28
• What we have set our internal target is get [Micro LAP share] to somewhere between 10% to 15% in the next 3 years. — 10% to 15%, FY30
• We are now working towards launching our LAP business in Karnataka and Madhya Pradesh over Q3 and Q4 [FY27]. — Q4FY27
• In Q4 FY26 earnings call, we had guided for 100 branch additions over the next 3 years. We are making steady progress and number of branches have increased from 454 to 475 in the last 2 quarters. — 100 branch additions, FY29

Key themes

Legacy loan rundown and retail diversification

How the narrative shifted

• Legacy book runoff and credit cost normalization: The drag from pre-Jan 2025 originations is rapidly running down from 65% in Q2FY26 to 26% now and ~10% by FY27 end, paving the way for sharp credit cost reduction and profit expansion.
• Micro LAP calibrated scale-up: Micro LAP is scaling rapidly at 170%+ YoY on zero capex via co-located branches with pristine asset quality (0.18% GS3) and targeted to reach 10-15% of AUM.
• Portfolio de-concentration across vehicle segments: IndoStar is deliberately shifting away from heavy M&HCV exposure toward passenger vehicles, CE, and FE, capping any single product vertical at 35-40% to limit cyclicality.
• Data science and digital collections architecture: Deploying scorecard-based STP (over 68-74%) and AI voice bots across early and hot collection buckets to institutionalize risk control and operating leverage.
• Borrowing profile optimization against rate cycle: While recent RBI tightening will reprice ~₹1,000 Cr of repo/T-bill-linked debt, ₹1,300 Cr of high-cost debt (>10.5%) maturing in 3-6 months will refinance lower, keeping overall borrowing costs flat to down.

Operational commentary

• Pre-January 2025 legacy book reduced to 26% of overall AUM (approx ₹1,850 Cr) compared to 65% in Q2FY26; expected to fall to ~10% by end of FY27.
• Micro LAP expanded into Bihar, Uttar Pradesh, and West Bengal, operating out of 154 co-located branches across 9 states and 1 UT; launching in Karnataka and MP in H2FY27.
• Vehicle finance field sales force increased by 51% YoY from 1,235 to 1,868 personnel; verticalized sales team across CV, PV, FE, and CE.
• Passenger Vehicle disbursements grew ~75% YoY, raising PV disbursement share to 31% while reducing M&HCV share from 31% to 27%.
• Data science straight-through processing (STP) reached 74% in used cars and 68% in commercial vehicles, alongside deployment of AI voice bots for early collection calls.
• Formed a dedicated 400-member hot bucket field collection team for resolution of high DPD accounts.
• Executed a direct assignment (DA) transaction in Vehicle Finance worth ₹132 Cr during the quarter.

Analyst Q&A

• Q. Clarification on sequential increase in reported loan yields from 16.5% to 17.6% versus net interest margin rising by only 10 bps.

  CFO clarified that 17.6% represents origination yield rather than total portfolio yield, and reported revenue includes DA assignment income of ₹132 Cr.

• Q. Why total AUM grew only by ₹200 Cr QoQ despite ₹1,400 Cr disbursements.

  MD explained this was due to ₹132 Cr direct assignment and write-offs on high-delinquency legacy book loans; the gap between disbursements and AUM growth will narrow as legacy runoff concludes.

• Q. Rationale for releasing ₹49 Cr West Asia/fuel overlay in Q2FY27 amid tricky macro conditions.

  MD noted that portfolio stress did not materialize after 6 months of higher fuel costs, 30+ delinquencies on the new book fell ~70%, and the recalibrated ECL model adequately covers actual losses.

• Q. Status of Security Receipts (SR) recovery across retail and corporate portfolios.

  CFO noted corporate portfolio SR recoveries are progressing per the 18–24 month timeline without negative surprises, and retail SR carrying values are expected to be recovered over 12–18 months.

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