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Indostar Capital Finance Ltd.

BSE: 541336 Sector: Financials
BSE 00:00 | 16 Aug 152.00 -3.90






NSE 00:00 | 16 Aug 152.00 -4.00






OPEN 169.00
VOLUME 10503
52-Week high 382.05
52-Week low 116.80
Mkt Cap.(Rs cr) 2,068
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 169.00
CLOSE 155.90
VOLUME 10503
52-Week high 382.05
52-Week low 116.80
Mkt Cap.(Rs cr) 2,068
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Indostar Capital Finance Ltd. (INDOSTAR) - Chairman Speech

Company chairman speech

Today with our resilient operating model an experienced andstrengthened leadership team strong capital adequacy and comfortable liquidity positionand robust risk management processes we are confident of an even better future.

Bobby Parikh

Dear Shareholders

As I write this letter the world has changed in more ways than one. Itcontinues to confront a health crisis unlike any other in recent history one that notonly has upended human lives but is also having an extraordinary impact on the economy.The second wave of the pandemic not only took a vicious toll on the health of people butthe economic toll too has been heavy.

During the year under review India's GDP shrank 7.3% - its worstperformance in any year since Independence. The lockdowns impacted supply-chains andadversely affected almost all sectors. Domestic demand and import-export cycle also weredisrupted.

Combating the COVID crisis

As we navigated the pandemic - and the uncertainty and changes itbrought - our first priority was the safety of our people. We also wanted to ensurebusiness continuity.

During the lockdown we adopted global best practices to manage healthand hygiene and remained committed to maintaining health benefits for all our employees.We put up wide-ranging controls in place including temperature checks RT-PCR testsmaintained social distancing and extensive sanitisation. We established flexible andremote working plans for our employees.

We equipped our teams with all the technology they needed forhurdle-free productivity.

Besides maintaining ongoing communication and engagement efforts withthem we also offered guidance resources to support their mental and physical well-being.

During this era-defining crisis we remained predictive and proactivein our decision-making to build team resilience preserve business continuity andreinforce customer-centricity. What we learnt together helped us modify our processes anddevelop best practices in IT and risk management. And this is what assisted us in ourresponse to the crisis and in emerging stronger in the post-pandemic recovery. Through adigital-led experience we helped our customers navigate the pandemic as we furtherimproved our IT processes.

Business review

When it comes to our business performance our endeavour has alwaysbeen to create and deliver sustainable and long-term value across our three lendingsegments - Vehicle Finance Affordable Housing Finance and SME Finance. This year too wecontinued our objective of becoming a leading provider of financing and credit solutionsfor emerging SME businesses and catering to the aspirations of the growing consumer baseof Middle-India. Spread across 218 locations in 19 states of India we worked towardscreating an organisation supported by advanced digitalisation - one that will deliverconsistent and resilient business performance. Besides further sharpening our businessmodel we made judicious use of capital and fine-tuned the balance between all theverticals.

Vehicle Finance

Total disbursement in this segment amounted to Rs. 9469 million ascompared to Rs. 16455 million in the previous year. Total AUM of Vehicle Finance stood atRs. 38866 million.

Today we have established a clear niche in financing used commercialvehicles. Also with our expanded national footprint there is significant potential andopportunity to grow this segment. The scrappage policy announced by the Government gives ahuge fillip to the used Vehicle Financing market. Further we also strengthened our ICICIBank partnership with renegotiated commercials.

Affordable Home Finance

Today IndoStar Home Finance operates in 65 locations across 10 statesin the Affordable Home Finance segment. Disbursement in this organically generatedportfolio stood at Rs. 2876 million during the year compared with Rs. 3629 million inthe previous year. Assets Under Management (AUM) grew 19% at Rs. 9911 million againstRs. 8310 million earlier. The segment continues to enjoy strong asset quality and a netNPA of 1.4% notwithstanding the challenging business environment that prevailed duringthe year.

SME Finance

Despite supply chain disruption and short-term demand contraction dueto the prolonged COVID-19 impact the SME segment displayed resilience.

The AUM of this business stood at Rs. 18338 million compared to Rs.17482 million in the previous year contributing 21% to the total AUM.

Moving forward

The prospects of the Indian economy although impacted by the secondwave of COVID-19 remain upbeat - backed by the expectation of another bumper Rabi cropand the increased levels of activity in several sectors. Net GST collections during FY2021were Rs. 5.15 lakh crore. Collections have remained strong since barring a drop in Maywith April 2021 witnessing a record high of Rs. 1.41 lakh crore. With several states noweasing COVID-induced curbs on economic activity the collections are likely to revive evenfurther during the remaining part of FY2022. The delivery of and access to the vaccine forCOVID-19 will determine how we cope up with this pandemic and all measures are beinginitiated to come out stronger.

Today with our resilient operating model an experienced andstrengthened leadership team strong capital adequacy and comfortable liquidity positionand robust risk management processes we are confident of an even better future.

Our technology strategy remained interwoven with our business strategyas we focussed on strengthening our technology platform.

Our investments in cloud infrastructure and cyber security aimed atcreating a digital ecosystem capable of offering seamless experience to our customers. Weremain well-equipped to leverage the growing opportunities in the Indian financialservices sector and the changing industry dynamics.

We are also expanding our geographic presence in eastern India wherewe had a limited presence. Besides we are also expanding our product and customersegments to grow our market share. Considering the present and emerging opportunities weproject growth in the retail segment to be even higher than the pre-COVID levels.

Our journey continues

Our key focus is to build a profitable business offer better returnsto stakeholders and create further value for our customers employees and otherstakeholders. With Brookfield and Everstone as co-promoters and being a professionallymanaged and institutionally owned organisation we are confident that IndoStar will be adominant leader in the chosen retail segments.

We thank all our stakeholders for their continued faith in our strengthand capabilities.

With Regards
Bobby Parikh


At the onset we are proud to share that we commenced our 10th year ofoperations this year. The past decade has been a true testimony of the path we havedesigned for ourselves to move ahead. Today we have a strong retail franchise with 78% ofour Assets Under Management being on the retail side.

R. Sridhar
Executive Vice Chairman & CEO

Dear Shareholders

FY2021 was an extraordinary year - a year of the global pandemic aneconomic recession across countries and personal challenges. Watching events unfoldthrough the year we remained focussed on what we as a company could do to serve.

We are proud of how our organisation stepped up and what our employeesachieved collectively. It is remarkable how much we persevered and accomplished in termsof our dedication to our customers employees and the communities around us.

During these COVID-19 times hope stemmed from the rising strength ofIndia's rural economy as Bharat emerged as the silver lining and was reckoned as theeconomy's inherent strength. As India's economy went into a spin and most sectors wereimpacted agriculture continued to perform well.

The Government was supportive to this segment owing to the migrantlabour crisis and flow of money into the rural economy was stronger than ever.

Just as the automobile sector appeared to be recovering from thepandemic shock and commercial vehicle manufacturers reported improved sales numbers thesecond wave of COVID-19 again hit consumer sentiments sharply and led to delay or scalingdown of purchase plans.

A resilient economy

Nonetheless the Indian economy has showed immense resilience to getback on track with high frequency indicators. GST collections rose to an all-time highand power consumption also increased. Customers carrying freight activity of essentialcommodities weren't impacted.

The disruption in economic activities due to the second wave ofCOVID-19 impacted the NBFC sector but it is likely to attain normalcy soon aided by thepent-up demand. With strong capital and on-balance sheet buffers the NBFC sector is wellprepared to manage and deal with any impact on economic activities owing to the secondwave.

The difficult environment provides tremendous opportunities to NBFCswith a strong franchise and sound management teams. Several NBFCs have ramped up defencesin the form of stronger capitalisation buffers. Those with a strong capital base and goodcredit rating enhanced processes and asset liquidity will survive the liquidity stress.Their tested systems to reach out to customers and unlock the benefits of operationalefficiency will provide further support.

Weathering COVID-19

At the onset we are proud to share that we have commenced our 10thyear of operations this year.

The past decade has been a true testimony of the path we have designedfor ourselves to move ahead. Today we have a strong retail franchise with 78% of our AUMbeing on the retail side.

At the organisational level we displayed tremendous resilience in theface of the operational challenges. We stepped up to manage continuity of business and toprotect the health of our employees.

Several measures have been put in place to manage this. Assistance wasalso offered in the form of COVID-related emergency. Besides we also engaged in regularcommunication with all our employees and interacted with them on a regular basisinforming them about various health and safety updates.

Post lockdown the Reserve Bank of India (RBI) offered a moratorium onloan EMIs for three months till May 2020. This was further extended till August 2020. AtIndoStar we offered the moratorium twice to our borrowers. With the pandemic impactsubsiding in the second half of the year and with collection efficiency improving to 100%by October 2020 we restarted our retail disbursements in November.

We are proud to share that within a few days of restarting this ourdisbursement reached pre-COVID levels. In fact we managed to record double value ofdisbursement in the third quarter as compared to disbursement recorded in the previousquarter i.e. Q2 of FY2021. The asset quality too has been stable since and is fastimproving. In spite of COVID-19 there was no restriction on movement of commercialvehicles carrying essential commodities which is the segment we engage in financing.

Ring-fencing our balance sheet

In March 2020 we made an accelerated provisioning and carried outaggressive write-offs both in corporate as well as retail financing businesses.

The objective behind this was to ring-fence our balance sheet for anyeventual credit loss.

This conservative approach strengthened our position and placed usideally to take advantage of future growth opportunities. We were also strengthened by therecent affirmation of AA(-) rating with stable outlook by Crisil with a stable assetquality even in the current challenging environment.

In addition the capital infusion of Rs. 1225 crore by BrookfieldBusiness Partners LP made during the year provided us with equity funding. It helpedimprove our capital adequacy further to 40%.

The investment offered us with substantial growth capital to pursuecalibrated growth. This capital infusion not only provided equity funding it also offeredus access to new debt financing given Brookfield's strong relationship with banks andfinancial institutions.

In a positive move this capital infusion has accelerated our retaillending strategy across vehicle finance SME finance and affordable housing finance in achallenging market environment. This also equips us with the ability to use capital forboth organic and inorganic growth. Today we have comfortable net capital adequacy topursue further growth opportunities. Further our strong liquidity pipeline and multipleavenues to raise further liabilities assist us in financing additional growth.

Well capitalised

In our first operating year post-Brookfield infusion we enjoyedcomfortable capital and liquidity position strong operating model and improved assetquality. Today we have AUM of around Rs. 83976 million and offer a wide range of loansto nearly 60000+ customers. We are a well-established diversified and robust financialinstitution. We continue to drive quality growth and produce superior return on equitythrough our experienced and highly professional leadership team and an execution-focussedmanagement team.

Performance in FY2021

Our net revenue from operations stood at Rs. 5810 million compared toRs. 7382 million in the previous year. In spite of a challenging liquidity scenario werecorded growth in disbursement and AUM.

Retail Lending's AUM accounted for 78% of total business at Rs. 67115million in comparison with 71% in the previous year. All our retail segments wereprofitable at Pre-Provisioning Operating Profit level (PPOP) which amounted to Rs. 2685million compared to Rs. 4278 million in FY2020.

Our Cost to Income ratio stood at 49.2%.

We maintained our Net Revenue from Operations at Rs. 5810 million. At31% of borrowings we enjoy comfortable and strong liquidity position with a capitaladequacy ratio of 35% and debt-equity ratio of 1.6X. Our objective is to enhance ourcollection efficiency and maintain a stable asset quality. We are building a separatecollection vertical to further enhance our asset quality.

Declining corporate book

In the past two years we have successfully transformed our businessprofile. While we are growing our retail business we are simultaneously reducing thecorporate lending business. There has been a steady conscious and continued reduction inour Corporate Lending AUM. Our retail business today contributes 78% to our total AUMwhile the corporate segment contributes the remaining 22%. The share of retail lendingearlier stood at 71% in FY2020 and 61% in FY2019. By the fourth quarter of the year ourcorporate book reduced to Rs. 19096 million. By the end of FY2022 we hope to reduce ourshare of corporate business to less than 10%. Our aim is to become a 100% retail companyin the next 4-6 quarters by building a profitable retail platform with growth potentialand by delivering excellent value to all stakeholders.

Leveraging the scrappage policy

The announcement of the incentive-based voluntary Vehicle ScrappagePolicy appears to be a game-changer in the segment. It is likely to rake up considerablylarger opportunities for the used commercial vehicle financing market. The policy isexpected to completely revitalise the CV sector. It is expected to accentuate demand fornew CVs and create an even larger market for used CVs. It is good for all stakeholdersparticularly for second-hand CV financing companies like ours. Market opportunity forNBFCs is also likely to come from higher government investments in roads and highways andgreater thrust on the rural sector.

NBFCs operating in this segment continue to leverage their deepcustomer understanding strong competencies relationship-based approach and extensivebranch network to drive business growth and penetrate newer markets.

Bringing strategy to life

Amidst a challenging environment faced during the entire year weutilised this time to effectively plan our future and built a clear 5-year strategy. Thisis targeted at building our retail business in a highly scalable manner. The retailstrategy is progressing well as we continue our surge with a wide bouquet of products -Commercial Vehicle Affordable Housing and SME Finance. We have plans to scale up each ofthese businesses over the next five years.

The next five years will be crucial for IndoStar to gain market sharein each of our retail segments especially in commercial vehicle financing.

Our emphasis on digitisation is further helping us improve ourturnaround time and customer service. We are also focussing on cost optimisation. Tofurther enhance productivity and bring down operating costs we are focussing on theconcept of "Smart Branches". By leveraging our Hub-and- Spoke Smart Branchmodel we are penetrating deeper into Tier 2/3 cities. A consistent focus has beenmaintained within the organisation to improve our collection efficiency and enhance assetquality. We are also working to expand our presence in geographies products and customersegments and gain additional market share.

Poised to grow

We have defined a clear path to expand our portfolio of retail loansfor second-hand commercial vehicles and affordable housing. We have an aspirational planfor the next five years. The Company is preparing itself for an even better FY2022 havingchartered a distinct trajectory of expanding the portfolio in the second-hand commercialvehicles SME and affordable housing. Besides leveraging the growth potential in thecommercial vehicle segment our objective is to make our home finance segment as aseparate and independent entity and build a strong SME loan book.

Strengthening internal capabilities

While we took advantage of the growing market potential we alsostrengthened our internal capabilities by creating a top management team and taking retailspecialists onboard. We are happy to have Deep Jaggi with us as our Chief BusinessOfficer. His prior experience at HDB a wholly-owned subsidiary of HDFC Bank where he washeading asset finance will be helpful as we further our retailisation strategy. Hisextensive experience in retail lending and impeccable track record in building largecommercial vehicle finance will be an asset. He is joining us at an inflection point as weget strengthened by equity infusion and look to leverage the sizeable post-pandemicopportunity in asset financing - all of which is making us a strong company in the retailbusiness.

Furthering our vision

Today we are a young company and hence our small size makes itpossible to look at huge growth with no liquidity and capital constraints. We expect highgrowth for next couple of years due to our low base. We are hoping to grow the retailbusiness multifold in the next five years. Moving ahead we remain steadfast on our visionto help India realise its aspirations - be it helping individuals buy a first homegetting a used CV financed or providing credit access to entrepreneurs to set up an SME.

Moving forward on our journey of becoming a diversified retail lendinginstitution we remain focussed on capitalising on the emerging growth opportunities andrising demand for vehicle finance affordable home finance and SME finance in India.

Further our growing investments in technology are strengthening ourcapabilities to become a process-driven company well equipped to capture future growth.

Thanking You.
R. Sridhar
Executive Vice Chairman & CEO