IndoStar Capital Finance Limited (INDOSTAR.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IndoStar Capital Finance Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ayushi Gupta from MUFG. Over to you, ma'am.

Thank you. Good afternoon, ladies and gentlemen. I welcome you all to Q2 and H1 FY '26 Earnings Conference Call for IndoStar Capital Finance Limited. To discuss this quarter's performance, we have from the management, Mr. Randhir Singh, Managing Director and Executive Vice Chairman; and Mr. Jayesh Jain, Chief Financial Officer. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand the call over to the management for their opening remarks, and then we will open the floor for Q&A. Thank you, and over to you, sir.

Thanks, Ayushi. Good afternoon, everyone. I'm Randhir Singh, Managing Director and Executive Vice Chairman of IndoStar Capital Finance Limited. On behalf of the entire IndoStar team, I extend a very warm welcome, and thank you all for joining us on our earnings conference call for the Q2 and H1 FY '26. I trust you have had a chance to review our detailed financial results and investor presentation, both of which are available on our website and filed with the stock exchanges. I will begin with a strategic overview of our business and operational performance for the quarter, following which Mr. Jayesh Jain, our Chief Financial Officer, will take you through the financial performance in detail. As you know, IndoStar has undergone a significant transformation from being a predominantly corporate and large ticket lender to a retail NBFC. We have successfully sold our wholly owned subsidiary, Niwas Housing Finance Private Limited a strategic shift, allowing the management team to focus on the vehicle finance and build Micro LAP business, 2 of our core growth engines. IndoStar today stands as a stronger and more agile retail franchise with a clear focus on sustainable and quality growth. We continue to scale the vehicle finance business, supported by improving collections, deepened customer relationships, and robust domain expertise. And the Micro LAP business launched in FY '25, continues to gain traction. In terms of overarching macro trends, India's real GDP grew at 7.8% in Q1 FY '26, driven by the government spending on infra, rural based growth and services. The Reserve Bank of India has revised its GDP growth forecast for FY '26 to 6.8%, while CRISIL maintains its estimated 6.5%, reflecting sustained momentum in private consumption and investment activity. Inflation figures for September 2025 came in at 1.54%, the lowest since June 2017, which is reflected in the RBI's CPI inflation forecast, easing to 2.6% for FY '26 from 3.1% previously, driven by GST, rate rationalization, and easing commodity prices. The Central Bank's monetary policy remains supportive of growth with the RBI having delivered 3 rate cuts of cumulatively totaling to 100 bps during calendar year, bringing the repo rate to 5.5%. These measures are gradually translating into lower borrowing costs across the system. Credit growth remains robust, particularly in retail and MSME lending, which continue to expand at a double-digit rate. According to ICRA, the NBFC sector is expected to record 15% to 17% year-on-year loan book growth in FY '26, led by strong traction in vehicle finance, MSME, and micro lending segments. IndoStar remains well positioned to leverage the improving credit cycle with a clear focus on retail-led growth. Moving to the commercial vehicle industry, ICRA expects overall CV volumes to grow by 3% to 5% in FY '26, driven mainly by the light and medium commercial vehicle segments, while demand for heavy trucks remains moderate. The outlook remains positive, supported by continued infrastructure projects, e-commerce expansion, and logistics growth. In the used vehicle market, demand continues to rise, supported by growing logistics and construction activity and a shift towards cost-efficient fleet ownership. The implementation of stricter BS VI emission norms has increased the cost of new vehicles, further boosting demand for used CVs. Disbursements in our vehicle finance business grew 8% this quarter compared to the last. Several steps taken recently like adding a prime business, widening of customer funnel, aligning DSA payouts with market standards, offering flexible pricing by segment, upgrading our 48 micro branches and hiring more field sales staff are helping build momentum. These efforts should continue to support growth in coming quarters. Typically, disbursement in H2 for the company have been about 1.4x to 1.5x of H1. Over a period of time, we also achieved a significant diversification in our vehicle finance business, away from medium and heavy commercial vehicle and have built significant volumes in passenger vehicles, construction equipment, farm equipment, and small commercial vehicles. Our M&HCV disbursements are now just about 1/3 of the total disbursement. On the Micro LAP front, NBFCs remain key players, and this segment has emerged as a high-growth area. According to CareEdge Ratings, the Micro LAP loan book is expected to grow by over 25% in FY '26, driven by self-employed borrowers and small businesses seeking secured affordable funding. Micro LAP continues to be a key growth driver for IndoStar, fully aligned with our retail strategy. To strengthen this momentum, we have onboarded Mr. Amit Khan as Chief Operating Officer for the Micro LAP business with over 25 years of experience primarily in secured mortgage products, Amit has successfully built a mortgage business from the ground up to nearly INR 10,000 crores in his previous organization. After a successful launch in Tamil Nadu, we are now expanding to Andhra Pradesh. To support this, we have hired senior professionals with deep experience in micro markets across the state. We have sanctioned our first loan in Andhra Pradesh this week. We are on track to start Micro LAP business in 3, 4 states using our existing vehicle finance branch network this year. Disbursements are scaling up through a structured rollout across Tier 3 to 5 towns with loan tenors of up to 7 years and average ticket sizes of INR 3 lakhs to INR 6 lakhs, much smaller than the legacy SME loans that average over INR 50 lakhs. At the same time, our funding profile continues to strengthen. The company's weighted average cost of borrowing declined from 10.8% in Q2 FY '25 to 10.2% in Q2 FY '26, marking a reduction of 60 basis points over the past year. This declining trend should continue as our incremental borrowing cost is now around 9% to 9.25%, supported by improving credit profile, strong lender confidence, and access to more competitive borrowing sources. We had previously highlighted during our Q4 earnings call about the proactive credit policy adjustments undertaken in response to collection softness that we had absorbed within our own portfolio and across our peer group. Loans originated under the revised policy framework are showing significantly lower delinquency rates. 30-plus DPDs are tracking at nearly half the levels seen for corresponding period in the last year. In future, too, we will continue to strengthen our credit policy by proactively adjusting our framework in response to softer collection trends. This strategic move is designed to enhance our portfolio's performance and reduce credit costs moving forward. In Q2 FY '26, our total loan portfolio stood at INR 7,564 crores and disbursements for the quarter were INR 927 crores compared to INR 850 crores in Q1 FY '26. The sequential growth reflects improving business momentum and demand across our focus segments. Overall, our portfolio continues to grow, supported by several operational improvements. We have scaled up customer self-service through the Indo Mitra App and other digital tools, including customer eNACH added 27% for vehicle finance and 95% for Micro LAP business for the month of September. Technology-driven collections have helped minimize cash handling and an optimized collection infrastructure with a [ one plus two ] process has improved recovery speed. With that, I hand over the call to Jayesh Jain, who will provide a comprehensive overview of our financial performance. Thanks.

Thank you, Randhir. Good afternoon, everyone. Thank you for joining us today. As shared by Randhir earlier on the call, we shall be discussing the stand-alone numbers. Let me begin by sharing an overview of our Q2 FY '26 numbers. Our retail disbursement for the quarter amounted to INR 927 crores compared to INR 858 crores in the previous quarter and INR 1,452 crores in the same period last year. We expect disbursements to pick up sequentially in the coming quarters as we continue to deepen our presence and tap into growing demand across our focus segment. In Q2 FY '26, we achieved an average disbursement yield of 17.8%, driven by our strategic focus on Tier 3 and Tier 4 towns and the growing share of secured lower ticket vehicle loans. Our assets under management stood at INR 7,564 crores compared to INR 7,783 crores in the previous quarter. While this represents a marginal dip, our on book portfolio stands at INR 7,022 crores and our off book portfolio stands at INR 542 crores. We remain firmly focused on scaling our core retail businesses with discipline, prudent risk management, and strategic intent. For the quarter, our net interest income stood at approximately INR 190 crores, marking a 15.7% year-on-year increase from INR 164 crores in Q2 FY '25. This was supported by an improvement in our net interest income margin, which rose from 5.6% to 7.6%. The yield on loans improved to 17.1% and 16.1% as compared to the same period last year. The operating expenses for the quarter were INR 121 crores as compared to INR 129 crores in Q2 FY '25. During the quarter, we took a proactive step to strengthen the quality of our own book assets by undertaking the sale of that portion of our commercial vehicle loan book. The transaction involved dues amounting to INR 309.6 crores sold for a purchase consideration of INR 220.3 crores. The ARC transaction was a strategic step aligned with our newly adopted policy to write-off loans over 210 days past due with our aim to maintain a high-quality book and keeping headline GNPA firmly under control. With policy tightening initiatives taken from the beginning of this calendar year, the forward flows on 210 DPD is expected to slow down in next few quarters. Our collection efficiency remains healthy at around 92%, supported by adoption of data-driven recovery tools. As a result of above and our continued focus on portfolio quality and disciplined credit metrics, our gross Stage 3 assets improved to 3.04%, while net Stage 3 asset stands at 1.13%. We closed the quarter with a net profit of INR 10.4 crores compared to INR 18 crores in the same quarter last year. Our capital adequacy remains strong at 37.3%, which gives us more than enough headroom to fund growth while staying financially solid. Our debt-to-equity ratio is 1.4x, so we have plenty of room to expand further. Our cost of funds continues to come down this quarter to 10.2% from 10.8% over past 1 year. Our incremental borrowing cost is now in range of 9% to 9.25%. As we look ahead, our focus will remain on improving our cost of funds and maintaining a balance between growth, profitability, and asset quality. With the macroeconomic environment continuing to look positive, we plan to lean into the momentum growing our book responsibly under tighter credit norms. At the same time, the fall in our funding cost is opening up opportunities for us to serve the prime customer segment, helping us expand our reach and diversify our portfolio. We believe these steps position us well for steady profitable growth in coming quarters and beyond. With this, I now hand over the call to moderator to begin the Q&A session.

[Operator Instructions] The first question is from the line of [ Diya Jain ] from [ SDA Finance ].

So I have a few questions from my end. Currently, the disbursement mix is heavily concentrated in the vehicle finance at around 97%, while micro loan against property contributes just 3%. Also, moreover, the Micro LAP disbursements have remained almost flat over recent quarters at around INR 27 crores. So what is the company's plan to scale up the Micro LAP segment going forward? Are there any specific strategies or regions being targeted to drive growth in this portfolio sales?

Yes, I'll take that. First, I think on the concentration front, Micro LAP is obviously a recent business, okay? And that's why you're obviously seeing, we heavily concentrated towards vehicle finance business. However, like I mentioned in my initial comments, within our vehicle finance business, we now have significant diversification not just across products, but also across geographies. And you'll find those details actually within our presentation. We have now built within vehicle finance significant scale in passenger vehicles, in construction equipment, in farm equipment, such as small commercial vehicles, pickup, et cetera, right? So -- and that business is very, very well diversified now across various zones. So we are present obviously in all the zones, right. So we are present in 23 states. You'll find more details of this in our Slide #16, you'll find how diversified we have come to be over a period of time, not geographically, but in our product set. Coming to Micro LAP, like we said that we have launched recently, you will see this business grow. Typically, even in Micro LAP business, like I discussed vehicle finance business, second half, you would see a significant momentum compared to what you have seen in the first half. So typically after March, there has been typically a drop in the disbursement, but it will pick up the pace. We have -- like I mentioned, we are obviously taking all the right steps from being present only in one state, in Tamil Nadu. We have -- we are building a business in AP and Telangana, and we have issued offers, people have already joined. In fact, we should be able to disburse our first loan either today or tomorrow in AP. So with that, you have TN, AP plus Telangana coming on board in the next 3 to 6 months. And we had also guided that we will try and be in at least 3 or 4 states in this financial year. And I think we are absolutely on track. Like we also discussed, all of this is using our existing vehicle finance branch network, and obviously, without any incremental cost on infra. I hope, Diya, it answers your question.

Yes, sir. It does answer my question. I just had a small follow-up question on what you said right now. So sir, how do you view the growth potential of the used vehicle financing segment going forward?

So I think it's the segment -- it's a growing segment. We ourselves have grown by 8% over last quarter. And in general, second half is anyway better for this one. So we should continue to see growth in this segment. We'd also guided, right, that we proactively in January, given seeing the softness all around, not just in our portfolio, we did take the step of tightening our policies and it was a conscious decision to tighten the policy, which obviously led to some drop in disbursement, but you'll see that now the momentum is reversing. We've grown by about 8% to 9% this quarter, and I think this momentum should continue.

Any key trends you are observing in terms of demand, customer profile, and competition here?

So I think it remains same. There is no real change. If you see, I mean, it's been a very stable peer set, I mean, except potentially one more NBFC, which has entered the space. There is no -- really I cannot say that there's been any increase in intensity -- competitive intensity in the segment. I think we obviously look at ourselves as someone who is getting advantage of funding cost and we can obviously widen our customer funnel significantly. There are a lot of segments that earlier we could not target, but with our own cost of funds down significantly, we're able to do more new vehicles, more prime customers. So I think, in general, the macro environment is supportive for us and our own obviously, cost of funds and our strong distribution of strength, which can help us to increase the amount significantly, actually, right? So we are just obviously being cautious, trying to address the risk and reward, and that's how we are building our business on strong foundation. But there is a -- from macro-wise, macro demand-wise, there is absolutely no issue.

One last question from my end. Where do you see IndoStar positioning within this market, both in terms of scale and differentiation?

Sure. So I think, yes, we essentially our focus continues to be we want to be one of the top retail NBFC with a very strong governance framework, professional board, professional management. And essentially, we want to become a multiproduct company because we have very strong distribution of strength. So our trajectory is very clear, very strong capital base, very strong investor profile, including a majority investor, easy access to capital, senior experienced team, and we are in both segments and both of segments that we're targeting are growing segments with a large addressable market. So we feel quite good about where we are and about our future prospects.

The next question is from the line of Shubhranshu Mishra from PhillipCapital.

I just have a question on vehicle finance. With the rate cuts, my sense is that there should be some degree of uptick. But if you can please call it out which all segments will see sustained growth. Also we've been talking about…

Shubhranshu, you are not very clear. Can you just repeat your question? Shubhranshu, can I request you to repeat your question? I think we couldn't hear you very well.

Right. So with the GST rate cuts, what kind of volume uptick are we going to see in vehicle finance? And the delinquencies in small commercial vehicles and light commercial vehicles, how long will that continue?

Okay. So I think the, I mean, the GST rate cut obviously is recent. It's still playing out. But essentially for an entity like us with our AUM and scale, we really do not see any sort of meaningful distance because we obviously have enough target market to really cover. So this is not something that obviously which is something that will play out over the longer run, not in quarterly -- quarter-by-quarter basis. On your other question, I think like I mentioned to Diya earlier, we do see significant growth opportunity available in the market. And essentially what we want to do is obviously balance growth with risk management, right? So that is really the philosophy that we have with our 450 branch network. We have a fleet -- and a fleet on the street with 4,000-plus people, about 1,200 to 1,500 people in the sales. We do have a significant distribution of strength to cater to this growing demand. So we have all the building blocks, a strong capital base, reducing cost of fund, low leverage, cheap distribution. So we feel good in catering to this growing demand. And we'll obviously calibrate our response to developing market situation.

And just one last question. With the GST rate cut, there would be price deflator in the new vehicles, right? So what is that blended price deflator?

So we are not really sort of present in new vehicles that much like we discussed. We've been predominantly, right, if you see our disbursement sales. Though you would see that growing over a period of time. In the past, it has been 2% to 3%. It may increase over a period of time because obviously, new vehicle financing is at obviously a much lower rate. But essentially what will happen in the industry and this is what we will do and many of our peers will do, that essentially what you do is, impact on business on the valuation of the used vehicle because the price of the new vehicles will drop, the price of used vehicles should also drop and that requires adjustment to valuation grid, which is what everybody is working out. It is yet to play out fully, right, because the change has been very recent. So we'll have to see what is the financing amount. For example, if something was costing, let's say, INR 5 lakhs before the GST cut in the used CV, it should cost now lower, technically, right? But we are not seeing that transmission fully in the prices. But as it happens, we will obviously adjust our grid values.

And is the OEM likely to increase its pricing after December, December 31?

Sorry, volumes increased after December because of GST?

No, no, the GST rate cut and the discount should be done by December 31. Post that, that do we expect OEMs to increase pricing?

See, I think that's a question that you should really honestly ask the OEMs, that is not for us. And I'm sure like we are keeping a very close track on our peers and what is happening in the new vehicle. We'll not be able to get on what is the pricing action OEMs should take obviously for us being very obvious that price should come down with the GST rate cut.

The next question is from the line of Sumit Bhalotia from MK Ventures.

Yes. I have -- the question is a slight repetition of the last 2 questions, primarily focusing on the growth front. So a few pointers that your branch count has come down Q-o-Q. your employee base count has also come down Q-o-Q. And when you were talking about in your opening commentary, you mentioned that the second half growth typically is 1.4x, 1.5x of the first half growth. And if I look at the disbursement numbers for first 2 -- for the first half, it implies a disbursement of around INR 2,500 crores in the second half. So how do you see that overall growth situation for FY '26 as a whole? And also this would be the first quarter probably when we have degrown in the core vehicle finance book as well, I mean, adjusting for the ARC that obviously the transaction is there. But at one hand, we talk about the huge opportunity which is there in this segment. And given the size at which we are and also with the new capital coming in, how do you see that growth scenario playing out for the second half and then for the next -- maybe in the next 2 years, if you can throw some color on that, that will be helpful.

Sure, Sumit. So I think what you would see is essentially ballpark. Our branch number has been sort of really been almost constant with the small changes here and there, which is really part of our consolidation exercise. Sometimes we do merge few branches if we are unable to really get productivity and if we feel that we can just manage it from 1 rather than 2. So that has been sort of the case. You would see, right, like we typically sometimes close, merge, we also open a few small branches. So as we speak, we are also opening some branches in Tamil Nadu and Kerala. And I think you may again see us going back to 450. But I think what is also fair is that we will not have a significant increase in the branch network for some more time, because obviously have opened significant number of branches in the last 2 years or so. And we obviously want to stabilize fully set out our existing infrastructure, improve the productivity, utilize these branches fully before we open new branches. So to answer your question on the branches, I think the number is ballpark has remained 440 to 450, plus/minus few branches here and there. That quarterly consolidation and new branches will continue, but broadly the numbers remain as 450 for 3 quarters. On -- there's been some drop in the number of people, and I did cover in my opening speech, we do plan to make it up. We have a significant pipeline of sales people joining and you should see us actually exceeding our numbers in the last 2 quarters. So you would see that significant amount of hiring in progress because we obviously want to build on the growth momentum as we have sold [ HFC ] and got significant capital. So you will see both branch numbers stabilizing around 450, but human capital will go back to the numbers that you saw earlier. I think we are at the peak, we are at about 4,300. So you will see both of these getting normalized. And we want to do that for a simple reason that we want to pursue growth. On another step that we have taken was even within these branches, Sumit, one significant step we took was we had a few micro branches, about 48 micro branches, wherein our micro branches operated on a very frugal concept where essentially we had kept one sales person who was initiating the meeting and then subsequently we're converting these to full-fledged branches. We have chosen to convert all these 48 micro branches to full-fledged branches. And that itself will lead to about 100 plus [ extra crores ]. So a lot of this is in the pipeline, but you'll see that in the next 2 quarters, you will see all of this reverting to the mean that we had. So very clearly, the intent is to grow, but I think where we've been very focused, given similar softness in the NBFC industry, especially on the commercial vehicle segment and we have obviously very close -- very low subsidy of many of our peers, including banks that we have seen currently from some of the banks as well as many of our peers indices in the last quarter and some more news that will come this quarter. We surely won't calibrate our growth and not get ahead of ourselves because we also want to make sure that our portfolio quality remains pristine, and we don't have any challenge -- and so that we just don't have any challenges going forward. Like I mentioned, I think we have absolutely all the ingredients for ramping up and some of this has been fairly conscious decision, but with 450 branches in 23 states, absolutely we can grow our business and we would. A few things which are work in progress is basically as we have added more prime customers, better credit quality customers. We had obviously -- we had to reorient some of our sales team as well as some of our DSA channel because the prime customers who operate at 13% to 15% are very different than 18% DSA, right? So a lot of that onboarding new channel engagement is going on. Typically, it takes some time, it is not immediate because you need to obviously build that relationship. So a lot of this is a lengthy process. But you would see us on that path very soon and numbers will start showing up in the subsequent quarters.

Sir, on disbursement, if you can throw some color. And also, so this degrowth in AUM that we have seen in the last 2 quarters, from next quarter onwards, as you're saying that things are improving, should we return to growth phase from next quarter onwards?

Yes. Look, I think like you said, except for ARC, we should have grown because it was 8% growth. So I think your analysis is absolutely spot on. It was basically that is what led to degrowth. But otherwise, of course, our disbursements have grown by 8%. Another thing that we have done, Sumit, and this is again in part, obviously, our strategies is obviously keep our headline GNPA numbers to a very acceptable level. We have also been maybe little more conservative. We have started a new write-off policy where after 210 days, we are doing a technical write-off. So some of that obviously happened last quarter and this quarter and that's why because of change in policy, you've seen that degrowth, but there will be normalization of that in the subsequent quarters and that effect will go away.

Sir, there is a significant improvement in asset quality because of all the efforts that and the focus that the current management has. But now we are back to, say, 1%, 1.1% net NPA. Are we within the comfort zone now? Or do you want to -- what is the comfort level of GNPAs for you as a philosophy for this, particularly vehicle finance business?

Yes. So Sumit, very clearly, what we guided in Q4 was that we have taken a significant policy response because we, obviously, our intent is to have a good portfolio quality, that's the immediate intent and that is basically a tussle between growth and portfolio quality. We obviously want to balance it. In general, you would see and like we also guided that since the tightening, our delinquencies are half, right, and which you would note that as a significant improvement and it is really on a fairly large amount of data in the first half. It was about give and take about 40,000 loans, so compared to the previous quarter and it's a significant amount of data. So we feel very good about our portfolio quality on what we are getting after [indiscernible]. So I think purely on that book, obviously we are tracking closely and things are obviously looking very, very good. And then and I think that is where we are headed, which means much lower GNPA. I think some of the headline GNPA is also a function of what is the write-off, technical write-off policy some people may have and that obviously plays a role. But in general, what we really want to target is headline GNPA of just about 3% handed. That is where we want to be. And it also obviously has significant positive value during our debt discussion from lenders. It does give a very positive signal, and this is also reflected in our cost of funds.

Sir, last question on cost of funds. It has come down already, but with the significant amount of inflow because of the transition that we have seen and now we have the cash in hand. Can you throw some color on the high-cost NCDs that we had done? Whether they are completely out or there will be a meaningful improvement from that getting replaced with the incremental low-cost borrowing? How would that get reflected in your P&L?

Yes. I think -- I got it, Sumit. Sorry, sorry, did I interrupt you? Were you asking…

No. Yes. So basically, there will be a significant -- there should be a significant improvement in the cost of funds going forward because of the replacement of high-cost debt? Whether it has already started getting reflected from this quarter? Or is it still due? If you can throw some color on that, that will be helpful.

Yes. So I think it is running off, it is running off quite fast. So that's why -- that is why you are seeing a reduction in the overall stock of obviously old borrowing. Some of the very high-cost borrowing has already been paid off. The remaining of -- there is some bit which is getting paid off in the next quarter. But in general, essentially, if you look at our Slide #25, what you would see there that our incremental is about 9.2, okay? And on the book cost is about 10.2, eventually they should converge, right? And I think they should converge sort of quickly in the next few quarters as, like I said, one of the highest cost NCD is entirely running off next quarter.

The next question is from the line of Faizaan Joad from Singularity AMC.

Just wanted to get some sense on sequential disbursement growth, because if I recall correctly, mid-August, the management said disbursement -- you were expecting some disbursement growth of 15% on a sequential basis. We ended Q2 on roughly half of that. So what changed here?

So I think, obviously, some of it was obviously general softness that we saw, right? There has been a general softness in the disbursement, some bit of demand and some bit obviously because we had tightened our policies and also put a lot of restrictions in the few micro markets, which we are hoping that would go away. A lot of that has been now with the restriction within the micro markets, we have now removed actually just about a month back. So there's been delay in removing some of the restrictions because we want to see the data. The data was actually quite encouraging and that is why we have removed restrictions in about 110 micro markets that we had put it. So that relaxation in restrictions we just delayed it a bit consciously and that's really the difference between 10% to 15% that we guided versus 8%.

And given, I mean, the H1 performance, do we continue to stick to our AUM guidance of 12% to 15% for FY '26 and 15% to 17% for FY '27?

So as you have already seen the H1 number, and we are kind of behind our guidance, while the efforts would be there to kind of maintain the guidelines of deliver the performance as per our guidance. But as mentioned, generally, our trend is 40/60. So let's see, I think things are evolving. Randhir did mention in his opening remark as well as during Q&A, a few of the initiatives which we are taking in terms of winding the funnel, conversion of a few branches to large branches, hiring plan. We kind of want to do that. But the core, as he mentioned, quality and the customer segment which we want to target would be something which we would primarily focus on. And within that framework, we would want to grow.

The next question is from the line of Varun Gajaria from Omkara Capital.

Just wanted to understand…

Varun, your line is not very clear. So yes, if you could just speak slowly, bit slowly so that we can hear you well.

Yes. Is it better now?

Yes, Varun. Now we can hear you.

Okay. Sir, just wanted to understand that we are looking at 95% or 94% collection efficiency, whereas at peak, I think we used to be doing 97% until the last 2 quarters. So what has faltered the 2% there? And when are we expecting that to come back up?

Sure. So I think you're referring to our presentation slide on, I think about on 28. Yes. So typically, you would see, I think what I would really request you to compare ourselves with last quarter, you compare this with the Q2 FY '25, which is 92% and versus that, we are up to 94%. So there has been improvement there. Like I said that you will actually see this improvement because our policy tightening, right, the new book creation has been, has led to significant improvement on the collection. So the trend is obviously, but you have to just compare it with the right period, which is really 1 year back because there are obviously seasonalities involved in both the demand and, right, and the realization. And typically, March is really the best period and the last quarter typically is that. So what you need to see is you can see this 97% versus what happens in 2 quarters from now. So that really is the -- that's essentially the trend from a 1-year basis is obviously up from 92% to 94%. And you should see this number improving on a quarter-by-basis as our new book is increasing in percentage and the old book is carrying off.

And with reference to Micro LAP since we are targeting now Andhra Pradesh and Telangana markets. So how do you see the ramp-up going there? And how will we go about adding branches there?

Yes. So essentially, we are -- like we discussed, we are openly only using our existing vehicle finance network. So we have about 45 branches, existing branches. So we will be launching this business in those branches only. So there will be no new branch expansion because it helps in reducing the cost, helps in amortizing the branch infrastructure cost over a larger AUM. So that is the strategy we would follow. I think we have already had very experienced professional as a state head. We have done the recruiting for 2 areas, which is about 12 branches and that is how we started. So we will keep gradually from 12 to about 45. I think that should happen over the next 3 quarters will be fully live in AP in all 45 branches, but we want to give ourselves time, build it cautiously because obviously there is nothing which really stops us from launching the 45 branches, but we are more comfortable building it gradually, learning along the way and making sure that while we invest, we obviously maintain the productivity and portfolio quality. So far, I think we have done quite well on that front. Calibrated growth in Micro LAP. We have about 1,800 customers and only 3 delinquent customers. So that is really the approach that we are taking to build Micro LAP with confidence, of course, because we have the network. So it's a great opportunity for us. We can essentially launch Micro LAP in 450 branches. But we are doing in a calibrated way, maintaining portfolio quality and maintaining the risk reward and investment versus profit.

So I can…

Yes, please.

…just a follow-up question on that. And just if I can squeeze in one. Micro LAP currently is relatively small. So with the kind of network that we have, what kind of mix are we looking at probably in the next 2 years?

So that is something that obviously we will decide, right, on a quarter-by-quarter basis, right? We are -- we want to make sure, right, that when we grow, we obviously we grow keeping making sure that profitability and portfolio quality remains okay. But in general, our guidance is that eventually as a company, we would be launching Micro LAP in majority of our 450 branches, right, over a period of time. And I think we would look to build a significant AUM about 20% to 30% of our total AUM should come from LAP business and which is no different from what many of our peers have. They have built this over a period of time. We made the start just about a year back, and that is a journey that we will also pursue. But like I said, we will not do this in great hurry because we obviously want to make sure that if there is any course correction required, we can do that. But if you see big picture guidance from our side, and that is our intent that we will eventually have Micro LAP business in majority of our 450 branches. So we're truly, truly multiproduct and that is our intent we have. And that's why we're obviously making significant investments in the business, hiring senior team. We talked about Amit Khan, who has about 25 years plus experience in mortgage business and is leading that business buildup.

Ladies and gentlemen, due to time constraints, this was the last question for today's conference call. I now hand the conference over to Ms. Ayushi Gupta from MUFG for closing comments. Over to you, ma'am.

I would like to thank the management for taking the time out for the conference call today. I would also like to thank all the participants for joining the call. If you have any further queries, feel free to contact us. We are MUFG Intime India Private Limited, investor relation advisors to IndoStar Capital Finance Limited. Thank you so much.

Thank you.

Thank you. On behalf of IndoStar Capital Finance Limited, Q2 FY '26, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.