Buy Indostar Capital Finance; target of Rs 195: Motilal Oswal

Motilal Oswal's research report on Indostar Capital Finance

Indostar reported 1QFY24 PAT of INR389m (PQ: INR760m) due to absence of any one-offs in employee expenses like last quarter. Gross AUM declined 2% YoY but grew 3% QoQ to ~INR80.6b. Corporate loans dipped 9% YoY, with their proportion at ~15% as of 1QFY24. Retail AUM rose ~4% QoQ to INR68.7b, while CV and Housing Finance grew ~7%. With its senior leadership team in place, focus remains on streamlining and improving processes, and exhibiting an improvement in asset quality. The company is well-positioned to deliver a steady improvement in its RoA profile. With better visibility on disbursement momentum, we estimate 30%/9% AUM/PAT CAGR over FY23-25 aided by healthy NIM (7.0-7.1%) and benign credit costs (1.4-1.9%) over FY24-25. After a difficult FY23, we believe this franchise is now on course for a turnaround.

Outlook

We have a BUY rating with a TP of INR195 (premised on 0.8x FY25E BVPS).