Indostar Capital Finance has been doing well in the stock market, increasing by 15% in the last month. This is much better than the 2% rise of the BSE Financial Services index. Indostar is a non-banking finance company (NBFC) that mainly lends money for things like commercial vehicles, homes, and small businesses. Over the last few months, it has kept its loans in good shape. Surprisingly, 98% of their loans are for personal use.
The company’s leaders believe they will make more money soon because they see fewer problem loans, cheaper financing costs, and more money coming in. Indostar has successfully reduced its number of bad loans, with its bad loan rate dropping from 7.9% two years ago to 4.9% currently. This improvement is largely thanks to efforts by new CEO Karthikeyan Srinivasan, who took over in February 2023. In addition, the company has made it easier to collect money.
In the last nine months, the company focused more on financing vehicles, which now makes up 69% of its loans, up from 45% a year ago. However, loans to small businesses have dropped to only 4%, down from 19%. Their costs of doing business have also gotten better, with operational expenses lowering from 82.6% a year ago to 67.1% now.
Recently, company collections were impacted by bad weather, which caused costs to rise. However, they expect credit costs to decrease as collections pick up. On the funding side, their borrowing costs are now lower, thanks to getting better rates from banks.
Motilal Oswal Financial Services said that Indostar sold off bad loans and believes it will start the next financial year in good shape. They predict that Indostar’s loans and profits will grow by 30% and 33% a year from FY24 to FY27. They have given a “buy” recommendation for Indostar’s stock, setting a target price of Rs325. This means they think the stock is currently a good buy, based on future estimates.
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