– IndoStar Capital Finance is transforming from a wholesale financier to a diversified lender
– Diversification strategy to gradually push-up operating cost
– Asset quality has been resilient so far but remains vulnerable
– More-than-adequate capital and comfortable liquidity are key differentiators
– Company maintains growth outlook despite tight funding environment
– Strong return ratios and compelling valuations makes it a worthy buy
Non-banking financial companies (NBFC) stocks have seen a sharp fall since September-end following liquidity concerns that engulfed the sector. While the correction has eliminated valuation froth creating some interesting investment opportunities, funding in the near term is expected to remain constrained, demanding a selective approach.
After running through a long list of NBFCs that have been penalised by markets, but stand out in terms of business fundamentals and valuation, we zeroed in on IndoStar Capital Finance.
Incremental loan growth driven by retail assets
Primarily a wholesale financier, the company forayed into SME, vehicle and housing finance to de-risk its loan book. The result of its diversification strategy is clearly evident in the changing mix of its Rs 7,767 crore loan book. Non–corporate loans now constitute 37 percent of its loan book as at September end as against 22 percent a year ago. In fact, 68 percent of disbursements in Q2 FY19 was towards the three focused retail segments (SME, vehicle and housing finance).