Buy Indostar Capital Finance; target of Rs 280: Motilal Oswal

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Motilal Oswal's research report on Indostar Capital Finance

Indostar reported a 4QFY24 PAT of INR353m, which rose 109% QoQ (PQ: INR169m). NII grew 11% YoY to INR1.2b. Opex, in 4QFY24, jumped 110% YoY to INR1.4b. This increase is not representative since the base quarter of 4QFY23 had a reversal of INR500m of ESOP expenses. PPOP grew 97% YoY to INR1.4b. Provisions stood at INR1b, translating into annualized credit costs of 5% in 4QFY24. Up-fronted assignment income during the quarter was utilized for strengthening the balance sheet and for increasing the provision coverage on the SRs and the wholesale loans.

Outlook

Indostar has strategically prioritized 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 ARC, both of these segments now contribute only 10% of the total AUM mix. It has made conservative provisions on stressed loans, and we expect the benign credit costs to continue in the near future. Over the last one year, Indostar has made some sound business decisions, which can help this franchise make a turnaround. The risk-reward is favorable at 0.9x FY26E P/BV. We have a BUY rating on the stock with a TP of INR 280 (based on 1.0x FY26E BVPS).

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