Buy Indostar Capital Finance; target of Rs 240: Motilal Oswal

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Indostar Capital Finance (INDOSTAR) is expected to deliver an AUM CAGR of ~26% over FY26-28E, driven by deeper market penetration, geographic expansion, and a strengthened distribution franchise.
  • The company's gradual run-down of the legacy portfolio and declining funding costs are expected to support lower credit costs and margin stability, driving a meaningful improvement in profitability.
  • INDOSTAR's NIM is expected to benefit from a gradual decline in funding costs, as higher-cost borrowings mature and get refinanced at lower rates.
  • The company's focus on increasing penetration in existing markets, expanding into newer geographies, and strengthening its distribution network is expected to drive growth and improve profitability.

Thesis Validation Checklist

  • Over the next ~12 months, investors should watch for signs of continued disbursement growth, improvement in asset quality, and expansion of the distribution network.
  • Key signals to monitor include the company's ability to maintain its guidance of ~35% disbursement growth over the next three years, the run-down of the legacy portfolio, and the decline in funding costs.
  • Investors should also track the company's progress in launching its LAP business in new geographies, such as Karnataka and Madhya Pradesh, and the growth of its Micro-LAP segment.
  • Additionally, monitoring the company's credit costs, NIM, and return on assets (RoA) will be essential to validate the investment thesis.