IndoStar Capital Finance Ltd (NSE: INDOSTAR) Q2 2025 Earnings Call dated Oct. 21, 2024
Corporate Participants:
Randhir Singh — Executive Vice Chairman
Karthikeyan Srinivasan — Chief Executive Officer
Vinodkumar Panicker — Chief Financial Officer
Shreejit Menon — Chief Executive Officer, IndoStar Home Finance Private Limited
Analysts:
Viral Sanklecha — Analyst
Vivek Ramakrishnan — Analyst
Subramanshu Mishra — Analyst
Jigar Jani — Analyst
Prashant — Analyst
Sumit — Analyst
Yash Mehta — Analyst
Yajash Mehta — Analyst
Anil Tulsiram — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to IndoStar Capital Finance Limited Q2 and H1 ’25 FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Viral Sanklecha from Orient Capital. Thank you, and over to you, sir.
Viral Sanklecha — Analyst
Thank you, Shilpa. Good afternoon, ladies and gentlemen. I welcome you for the Q2 and H1 FY ’25 earnings conference call of IndoStar Capital Finance Limited. To discuss this quarter’s business performance, we have from the management Mr. Randhir Singh, Executive Vice Chairman; Mr. Karthikeyan Srinivasan; Chief Executive Officer; Mr. VinodKumar Panicker, Chief Financial Officer; Mr. Shreejit Menon, CEO, IndoStar Home Finance Private Limited; and Mr. Pushkar Joshi, CFO, IndoStar Home Finance Private Limited.
Before we proceed with this call, I would like to mention that some of the statements made in today’s call may be forward-looking in nature 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 over the call to the management for their opening comments and then we will open the floor for Q&A. Thank you, and over to you, sir.
Randhir Singh — Executive Vice Chairman
Good afternoon, ladies and gentlemen. I’m Randhir Singh, Executive Vice Chairman of IndoStar Capital Finance Limited and I welcome you to our Q2 FY ’25 earnings call to discuss our financial performance. I hope you had the opportunity to review our financial results and investor presentation, which are accessible on our website and via the stock exchanges. Joining me today are Mr. Karthikeyan Srinivasan, our Chief Executive Officer; Mr. Vinod Panicker, our Chief Financial Officer; Mr. Shreejit Menon, the Chief Executive Officer of IndoStar Home Finance Private Limited; and Mr. Pushkar Joshi, the Chief Financial Officer of IndoStar Home Finance Private Limited.
At the outset, let me share with you how we have structured this call. First, I’ll briefly cover some key strategic highlights that the management team delivered over the last quarter. Then Karthik will provide you an overview of the macroeconomic drivers and key industry trends setting the broader context for the financial performance of our CV business. Vinod will then provide Q2 FY ’25 earnings update for the standalone parent entity. This will then be followed by Shreejit sharing the quarter two FY ’25 earnings call update for IndoStar Home Finance Private Limited. Post this, we will open the call for further questions.
Here is an overview of some of the key developments at IndoStar for the last quarter. First, sale of IndoStar Home Finance in Q2. We discussed this in our previous call on the 19 September, 2024, IndoStar Capital Finance announced the sale of its wholly-owned subsidiary IndoStar Home Finance Private Limited to Witkopeend BV, an affiliate of BPEA EQT mid-market growth partnership, a global private equity investor for INR1,750 crore on a fully diluted basis. The transaction is subject to customary conditions president including receipt of our reapproval, consent from lenders and shareholders.
Number two, rating upgrade by CRISIL to stable. On September 9, 2024, the long-term rating of IndoStar Capital Finance Limited facilities and instrument was upgraded by the rating agency CRISIL to stable from negative while reaffirming the rating at CRISIL AA minus and short-term rating of commercial paper is reaffirmed at A1 plus. Third, issue of secure redeemable non-convertible debentures. During the last quarter, the company raised INR266 crores through its made in public issue of secured redeemable non-convertible debentures.
I will now hand over the call to Karthik.
Karthikeyan Srinivasan — Chief Executive Officer
Thank you, Randhir, and good afternoon, everyone. Welcome you all on this call today. I truly appreciate all of you being part of our journey. Let me start by discussing the macroeconomic factors this quarter, which has been quite tough. The IMF had reaffirmed India’s growth forecast for ’24 at 7% in July. The improved prospects for private consumption particularly in rural areas was a key factor in this forecast. The IMF expects a slight moderation of growth to 6.5% next year. The annual retail inflation based on the All India Consumer Price Index rose to 5.49% in September, higher than the 3.65% in August. The key driver was food inflation that rose to 9.24% annually compared to 5.66% in August, which was triggered by the late second phase of the monsoon that affected both visitable output and supply to local markets.
If you notice, even in today’s newspaper, there has been a discussion around how onion is getting impacted due to late arrival as well as damage due to the monsoon. While inflation was still within the Reserve Bank’s medium-term target of 2.6%, this is the highest level inflation rate since December ’23 when it was 5.69%. In view of the stubborn inflation, the RBI has kept the repo rate unchanged at its monetary policy meeting on October 9, 2024. This is the 10th consecutive meeting since February 8, 2023 that the MPC has held the repo rate steady at 6.5% while it has changed the stands of the monetary policy to neutral from withdrawal of accommodation.
The RBI governor in his address pointed to the high-growth the NBFC sector has witnessed in the last few years and cautioned when he said “a growth at any cost approach would be detrimental.” Given the tone of the regulator and the tightening of regulatory norms for bank funding to the NBFC sector, this has already impacted the NBFC’s access to funds. According to an ICHRA report from August ’24, the elevated cost of funds, increased competitive pressure from banks, slowing growth and resulting asset quality challenges is expected to result in weakening profitability for the NBFCs, which is expected to decline by 25 to 45 basis points vis-a-vis ’24 levels.
Now changing gears to the commercial vehicle industry. Over the past few years, especially in ’22 and ’23, the CV industry saw a good growth both in volume and tonnage terms greatly expanding our foundation. This was basically the COVID rebound years where the market wanted to invest in newer and newer commercial vehicles and BS VI was also new. This growth was also driven by infrastructure development, increased mining activities, a replacement demand that got kicked in because the COVID years didn’t trigger the replacement demand. As we look forward, this replacement demand is expected to be steady primarily driven by aging fleet. The implementation of the scrappage policy is likely to also spur the new AP growth.
Despite the strong revival of the monsoon in the second phase, we believe the CV growth in the current year will moderate driven by the high cost of the new BS VI vehicles, which continues to raise and with the new air conditioned driver cap rules coming to force in March next year, we see more respite in the rise of the vehicle cost. In addition to this, interest rates are also expected to remain high muting growth. Given the rise in the new vehicle cost, the used CV segment will continue to see high demand from transporters. The drivers for this are as follows. First and foremost, there is a scarcity of old vehicles and fewer financing options available for the retail and FTU profile.
Over the past two years, the UCV industry has grown by close to 30% due to price hikes driving limited supply. This scarcity originates from the COVID years, sale of new vehicles being muted and driven by the move from BS IV and the industry being impacted by COVID. The overhang of the scrappage policy which we are seeing each of the states coming up with newer and newer versions will also push customers to sell their older vehicles to the — which are close to the 10 year mark and replace them with recent used commercial vehicles. At IndoStar, we are committed to our goal of exploring new product strategies to boost returns and diversify our offerings to retail CV operators.
We plan to launch ancillary products around the trucking industry like the tire finance so that the complete benefit of IndoStar can get translated to our customers. We remain committed to enhancing our analytics to ensure our model is flexible and capable for growth. Recognizing the increasing importance of technology, we have made significant investments in our end-to-end loan origination system, which is now digitally driven. Additionally, we are also expanding our operations particularly in Tier 3, Tier 4 locations with an emphasis addressing the rise in rural demand due to good monsoon.
The commercial vehicle disbursement for Q2 FY ’25 reached INR1,499 crores showing a growth of 53% over the previous year of INR948 crores. We have actively pursued our goal to reduce NPAs through the implementation of robust collection tactics, superior credit appraisal and stringent control measures and we have been able to reduce delinquencies quarter-on-quarter even though the last quarter it has been challenging due to the delayed monsoon and the second phase of the monsoon. Currently, our GNPA stands at 4.97% for FY ’25 Q2 for the standalone entity.
We have also launched our new small business loan division with a focus on micro loans against property particularly targeted as Tier 3, Tier 4. This we have launched in the Tamil Nadu market. This strategic shift not only ties closely with the market demand, but also reflects our dedication to expanding our footprint and supporting entrepreneurship in underserved regions.
Now I hand over the call to Mr. Vinod Panicker for our financial performance.
Vinodkumar Panicker — Chief Financial Officer
Thank you, Karthik, and good afternoon to all of you. I sincerely appreciate your presence on this conference call today and I appreciate the fact that most of you have been with us over the last several quarters. Please allow me to provide you with an overview of our financial performance for Q2 and H1 of FY ’25. Before we begin with the financial performance, we just wanted to mention that post announcement of HFC business sales, the consolidated numbers are presented as per Ind AS 105 non-current assets held for sale and discontinued operations. All consolidated numbers that I am mentioning now would be including the Housing Finance business. During the quarter, our consolidated net income from operations was at about INR218.5 crores showing 14% increase on a quarter-on-quarter basis and showed a net interest margin of about 5.6%.
Turning to the operating expenses. We recorded INR160.5 crores in the quarter, representing a 16% increase over immediately preceding quarter, which was on account of both increase in workforce and also branch expansion costs. Our overall consolidated profit stood at INR31.7 crores as compared with INR24.9 crores in the immediately preceding quarter. On a consol basis, our assets under management was at about INR10,112 crores as compared to INR9,565 crores in the immediately preceding quarter and up by 31% versus the INR7,726 crores quarter that was there in the same quarter last year. The disbursements in the current quarter was at about INR1,724 crores on a consol basis versus about INR1,627 crores in the immediately preceding quarter and against INR1,269 crores in the same quarter last year. This can be attributed to the strong focus on the retail segment. Retailization effort continues to yield favorable results and we are confident in sustaining profitable growth in the coming quarters.
At ICF standalone level, our net total income stood at INR165.9 crores, an increase of 15% from INR143.8 crores in the immediately preceding quarter. Our operating expense was at about INR129 crores, up from about INR112 crores from the — which was there in the immediately preceding quarter. As on 30 September, we maintained a cash an d cash equivalent of about INR791 crores. Additionally, about INR512 crores was kept in bank and trust towards securitization deals as security deposits. This is even after we repaid close to INR1,300 crores of our debt in the current quarter.
In terms of funding, we have made substantial progress in improving our liquidity position by improving incremental funding, raising incremental funding of about INR2,361 crores in the second quarter including INR1,391 crores, which came from bank either in the form of term loans or working capital demand loan or securitization. Our emphasis on the coming — in the coming quarters is to continue increased financing from banking channels in the big base. That was one of the points which was possibly worrying most of you when we spoke in the several quarters — past few quarters. Over the last three quarters, incrementally funds are being raised at lower level as confidence of the banks and other investors, other lenders on IndoStar has improved.
Our incremental cost has come down from about 12.7% that was there in Q4 FY ’22 to 10.1% in Q2 FY ’25. During the quarter, we — like Randhir mentioned, we successfully completed our maiden public issue of NCDs where we had issued at a coupon rate of anything between 10.3% to 10.7%. This trend we are hopeful will of — we are hopeful of continuing as the business stabilizes and is seen by the lenders as such. Our capital adequacy stood at about 25.9% and the debt equity is at above 2.26 times, both of which gives ample idea to anyone who looks at the numbers that there is ample headroom for further growth and for further borrowing, which will lead to further growth.
The more we leverage is the more we will be able to improve our ROE going forward. The disbursements in the vehicle finance segment was at about INR1,449 crores like Karthik mentioned, up by about 53% versus the same quarter last year and for the vehicle finance, the AUM stood at about close to INR7,000 crores at INR6964 crores, up by about 10% against the immediately preceding quarter. We are pleased to report that our yields have also improved significantly and with our focus on Tier 3 and Tier 4 and also focus on light commercial vehicles and other smaller assets which we combine and call it as focus 4, the yields have gone up from about 18.5% — to 18.5% to about 17.5% that was there about a year back.
Notably, 99% of our EV disbursement is in the UCV space, which permits us to get better yields. Collections have been impacted by heat wave and heavy rain across the industry and some of it is seen in our collections as well. We achieved a total collection of INR993 crores during the quarter as against INR905 crores in the immediately preceding quarter. Our CV EMI to EMI collection efficiency was at about 89% and including OLT was about 93%, which is about 200 bps lower than the immediately preceding quarter. We managed to keep the gross Stage 3 at 4.97%, while the net Stage 3 inched up slightly to about 2.5%. With net revenue from operations improving and opex stabilizing, we expect to improve our profitability in the next few quarters.
Now I invite my colleague Shreejit Menon to provide further insight into the Housing Finance business, which is another key area of our business till the last quarter. Over to you, Shree.
Shreejit Menon — Chief Executive Officer, IndoStar Home Finance Private Limited
Thank you, Vinod. Good afternoon, ladies and gentlemen. I’d like to start by taking you through the key highlights that illustrate our accomplishments during the quarter ended September 30, 2024. Randhir mentioned about the milestone transaction and really that’s a validation of the business and the business model and sets us up to becoming a pedigree affordable housing finance company in the years to come.
Now moving on to the business parameters. Despite the lean seasonality, we continued the growth momentum from the Q1 to clock INR261 crores disbursement numbers for Q2 FY ’25. We are delighted to inform that we’ve made strong progress across most business metrices. During the quarter two with a total disbursement of INR261 crores, our assets under management reached INR2,561 crore, representing a robust growth of 13% on a YTD basis. Our loan book stood at INR2,047 crores. Our customer base now stands at more than 32,500 depicting our granular nature of our assets with an average ticket size of INR9 lakhs and we’ve maintained that average ticket size now for over the last two years.
Tamil Nadu, AP, Telangana and Maharashtra continued to remain our core geographies accounting for almost 85% of our portfolio. We continue our journey to enhance operational efficiency and embrace digital transformation. We’ve now got a total branch network of 128 branches across the country as on 30 September, 2024 and continue to expand radially in the chosen geographies by way of digital locations. Maintaining excellent asset quality remains a cornerstone of our operations. Our 90 plus days past due portfolio stands at 1% and one plus DPD stood at 3.9% as on 30 September ’24, which is range bound as compared with 0.9% and 3.95%, respectively, in previous quarter.
Our gross Stage 3 assets GNPA stood at 1.41% as on September 30, 2024. We continue to enhance our digital infrastructure to provide seamless experience to our valued customers. As mentioned to you in the last quarter, we’ve now gone live with our digital connector app to onboard connectors seamlessly starting this quarter. Continuous progress in digital capabilities remain a way of life for us and as part of that journey, we’ve developed an automated initiation of legal, technical and FI request from the system, which is expected to further reduce the log into sanction TAT as we move forward. We received our corporate agency license from IRDA on August 19, 2024, which was a key element in the plan for financial year ’24, ’25. With this license, we can now distribute insurance products to our customers, which will add to our top line. On the liability side, we successfully raised INR495 crores during the quarter majorly through term loans from banks and PTCs. We’re also pleased to report a strong liquidity position with INR369 crores of cash on the balance sheet.
Now moving on to our financial performance. Our total income for the quarter two of FY ’25 stood at INR95 crores with net interest income at INR55 crores. The same figures for H1 FY ’25 stood at INR180 crores and INR104 crores, respectively. Pre-provision operating profits stood at INR21 crores for quarter two and INR42 crores for H1 FY ’25. Profit after tax stood at INR14 crores for the quarter and INR28 crores for H1 FY ’25. Our return on asset as a result stood at nearly 3% for H1 FY ’25. We maintain a strong capital adequacy of 55.7% and a debt-to-equity ratio of 3.2 times.
In conclusion, our commitment to innovation, efficiency and maintaining a high asset quality continues to drive our success. Looking ahead, we remain focused on executing our strategic initiatives to further enhance our operational excellence, expand our customer base and explore opportunities for growth. We are extremely optimistic about the future and remain dedicated to delivering sustained value to our investors and our stakeholders.
Thank you once again for your continued support and participation. With this, I hand over the call to the moderator for further course.
Questions and Answers:
Operator
[Operator Instructions] We have the first question from the line of Mr. Vivek Ramakrishnan from DSP Mutual Funds. Go ahead, sir.
Vivek Ramakrishnan
Thank you and good afternoon. The first question is around — it’s like a large question, which is around the CV price increase and collection efficiency. Does the CV price increase mean that the freight rates have also increased or will it be longer-term tenures for your customers? The second thing is what is the financial health of your target segment? Is that part of the economy doing well? And importantly, in this whole microfinance episode that we are hearing about the market, we see that fintechs are there with the erstwhile microfinance customers and that is also impacting credit quality. So for your operators, do you see over leveraging as a problem?
Karthikeyan Srinivasan
So I’ll take it step-by-step. See, CV excessive pricing or the increase in pricing needs to get addressed by a longer-term tenure, but NBFCs today don’t have the wherewithal to give a longer-term tenure of seven years. Seven years will be the ideal scenario. If you look at international markets like a Brazil or China, commercial vehicles new get sold at per seven years because the baggaries get managed with a lower EMI, but that’s not going to happen here because I’ll get into an ALM problem. So it will be a short-term product only, four years maximum or five years that’s the product which we will be offering because the — because of the nature of our economy, there will be — and we don’t have a comprehensive scrappage policy. We will go through these kind of baggaries in the market. That’s why it will be restricted.
Second, collections, the extended monsoon has impacted collections. Many of the vehicles were not able to move. That’s the major problem, which we have been observing from operators. We feel like this month once the monsoon starts coming down, but for the lower — but for the Southern markets, the recovery will be good. Southern market still last month were still holding on delinquency. There were no problem. Few pockets of Kerala like Wayanad and all have got impacted due to those flood, but that will recover over a period of time. My profile is impacted by the microfinance.
As of today, we have not seen any major stress coming in there because these profiles typically are negative profiles for microfinance companies also because typically fees transporter, these guys are not treated like a prime customer and even in the microfinance profile. So as of today, we have not seen. But once we get an idea as balanced companies start coming out with the results, we’ll be able to find out, but we are not seeing anything. The last question around freight rate increase, we have not seen any freight rate increase as of today. The first half of the festive season has been quite muted.
Vivek Ramakrishnan
Thank you very much. So actually, what I meant was these fintechs have landed up at the doorsteps of a lot of companies and so people are getting over-leveraged buying consumer durables and also I was wondering whether your freight operators have that issue.
Karthikeyan Srinivasan
As of now, we are not seeing — any observed anything.
Vivek Ramakrishnan
Okay. Excellent. The second question and this is to Vinod and congratulations on increasing your bank loans, which you really have worked hard upon. This is regarding this write-offs and provisions that we see. So what — so essentially what you’ve done is write-off Stage 3 loans and reduce the ECL provisions against that. Is that what you have done in this quarter? And if that is so, could you just explain your write-off policy, please?
Vinodkumar Panicker
See, hi, Vivek. Thanks for being on the call and thanks for the kind words actually. I hope I’m audible. See, we have done two, three things. One is definitely we have got a policy of anything about 730. We take 730 days outstanding or we are not received a single rupee, we take — have an option to take a call on that. That’s something which is basis our policy. So anything which was there about 730 days outstanding DPD that’s what we have actually written off. That was one thing that we did. And you mentioned about — and therefore the ECL provisioning on that — there would not be any reversals because of that because that would only — my provision that I take is only about 55 — it being a pre to March ’22 kind of portfolio, it would be closer to 60%. So the additional balance of 40% would have been provided by me. That is how we have done that. That’s how we have actually got to the numbers that we’ve given.
Vivek Ramakrishnan
Thanks a lot, sir. So I was just looking at the write-offs of INR57.4 crores and the ECL provision knockoff of INR38.2 crores. So I was wondering how the math worked there. I think that’s…
Operator
Sir shall we move…
Vinodkumar Panicker
I think — no, Vivek, I think this could I would say this would need to be slightly more detailed. I think we will need to get offline and discuss these numbers because I will possibly take you through each and every number.
Vivek Ramakrishnan
No problem. Thank you very much and seasons greetings to you and your team.
Vinodkumar Panicker
I am making a note of it. I will do one thing possibly post this call, me and my colleagues will actually get on a call with you.
Vivek Ramakrishnan
Thank you. Really appreciate. All the best.
Operator
Thank you, sir. We have the next question from Mr. Subramanshu Mishra from PhillipCapital. Please go ahead, sir.
Subramanshu Mishra
Hi, Subramanshu here. So just want to extend the previous question of Vivek. Essentially, if we are seeing a slowdown in CV, what tonnage of vehicles are these? Any geographies you want to point out to? Is it new or used? And given the fact that we are largely catering to used vehicles, which would be mostly SRTOs, these guys take the spot pricing and the freight prices largely reflect the spot pricing of the fuel. So they shouldn’t be under much of a stress if they are taking the spot pricing. So just wanted to understand these particular. Thanks.
Karthikeyan Srinivasan
See, the — hi, Karthik here. See, the challenge is not the pricing. The challenge is the movement of the vehicles. If you see many of the markets, particularly the last week of August or the first week of September, markets like Andhra got flooded. So if your vehicle goes, gets stuck there, you don’t get the return load the same month. Your vehicle is there for a particular period of time. So you use your revenue. That is what has impacted the market. So we are not saying anything around the freight. We have not seen any drop in the freight rate as of now, but the movement has got severely impacted. That has naturally impacted the overall earnings of the operator and that’s what we are meaning here. If you see the overall industry, the new vehicle has slowed down because of the monsoon effect. We feel like this month once the monsoon moves away, the rains move away, the irrigation contracts will kick off fully and the mining will also restart and we will be able to see positivity.
Subramanshu Mishra
Okay. So in terms of the pricing and the volumes of used vehicles, do we see a similar uptick in FY ’25 as we have seen in the last two or three years?
Karthikeyan Srinivasan
See, as of today, I have not seen any factor which will impact it negatively, because if you notice recently Telangana announced a scrappage policy. So the scrappage policy is not very far away. Once that comes in, the positivity around the used commercial vehicle industry will remain, plus many of us are moving customers from the unorganized segment to the organized segment that is also going to positively impact the used vehicle segment. So I don’t see any negativity coming around for this year.
Subramanshu Mishra
Understood. And if I can just squeeze in one last question. Given the fact that you alluded to climatic changes impacting our performance, are we going to make some kind of reserves in our capital buffers for any climatic changes we might be seeing in the future years? Because this is seeming to impact a vehicular movement for quite a few guys.
Karthikeyan Srinivasan
See, in our ECL model, the macroeconomic factors like all these has a factor — it’s a factor. So it gets captured there. And monsoon in India is something which is known for many generations. We all know that during this period, there is going to be an impact. So that gets captured in the ECL more.
Subramanshu Mishra
What I meant is the erratic nature of monsoon. Of course, I know that the monsoon gets captured in the ECL.
Karthikeyan Srinivasan
See, Subranshu, there are years in the past also where there have been lower monsoons or monsoons which have got delayed. So all these go into the ECL factor. So we don’t — it is a five-year factor of macro factors. So I don’t see any challenge coming in there or need for creating additional provision.
Subramanshu Mishra
Understood. Thank you so much. I’ll come back-in the queue.
Vinodkumar Panicker
Thanks, Subranshu.
Operator
Thank you so much, sir. We have the next question from Mr. Jigar Jani from B&K Securities. Please go ahead, sir.
Jigar Jani
Hi, thanks for taking my question. A couple of them. One is now I’ve seen two quarters of collection efficiency declining. I think Q1 was impacted by heat waves, Q2 by I think flood is what you mentioned. So do we see these write-offs or credit costs moving up because of these lower collection efficiencies in the last two quarters for the full year FY ’25? Do you change our credit cost guidance? That’s the first question. And the second is, we have also seen the only standalone entity employee benefit expenses going up sequentially sharply. So any one-offs there if you could highlight that would be the second question. And third, any update on what we are going to do with the inflows that we received from the sale of the Housing Finance subsidiary? Have we made any decision on that? Thanks.
Vinodkumar Panicker
Yeah, I will take your question. Jigar, thanks for being on the call. On the credit cost, see, these things — this current quarter has seen some bit of increase in the cost, but then we have factored in these kind of cost on a full year basis. So maybe quarter-to-quarter, we will see changes, but we don’t expect things to be deteriorating on a full year basis. Q1 has seen some bit of a cost — Q2 have seen some cost. There would be substantial, I would say, improvement in the third and the fourth quarter. That’s what we — in fact, I think Karthik in a different context did mention about that, that things will improve as we go forward. So we don’t see a challenge or we don’t see any need to change our credit cost guidance. We had always said that it would be in the 2% range on an overall basis. We’ll stick to that and we’ll continue to maintain that.
On the employee cost, yes, there are — we have — I think in a different count, I think during my initial commentary itself, I had mentioned about it saying that we have seen increased costs. It’s largely because of the number of employees that are increasing. In fact, even in this quarter, the costs have gone up because of certain season management hiring and also on account of hiring of the field staff. We have actually increased the total number in the standalone from about 3,500 odd to close to 4,000 odd. And then we had — normally in the first or second quarter, we normally have a rewards and recognition kind of event. So that — last year it was spread over the year. We added about three, four small, small one. This time we had one large one. So that is something which has been fully charged to the P&L in the current quarter. Therefore, the cost is higher as far as the employee cost goes.
On the inflow, I will request to say of Randhir to actually comment on that, what is it that we are planning to do.
Randhir Singh
Yeah. So I think like I said that while the inflow obviously is sometime away and we expect it sometime March, April next year, but really our plan is to really use it for the business, right, for our core business. So the money will be used for our core business, which is CV and small businesses. So it’s really towards our general business that we do, which is really towards disbursement, loan repayment and regular opex. So nothing kind of unusual than what we would do any kind of liquidity. So for our regular business is what we’re going to use it for. Exactly specifically, obviously, something that we decide once we are closer to the inflow, which is, let’s say, six to seven months from now.
Vinodkumar Panicker
Thanks, Jigar.
Jigar Jani
Thank you. Thank you so much for answering my question. Thank you.
Operator
Thank you so much, sir. We have the next question from Mr. Prashant from SBI. Please go ahead, sir.
Prashant
Yeah. Thanks for taking my question. Just broadly three questions. One, the increasing write-offs and Stage 3 number, if you could increase what business is leading to that? Secondly, I see that there’s additional term loans of around INR815 crores done during the quarter. If you could just give us some more details around that? And lastly, there was something in the public that there is an ARC sale that was done in August ’24. If you could just give us an update over that, sir? Yeah.
Vinodkumar Panicker
We’ll start with ARC. I will possibly start with the last question first. You mentioned about the sale of ARC. See, we have always wanted to close our corporate loan portfolio. And I think in the previous calls also, Prashant, we had mentioned that we will look at ways and wins to get rid of the corporate loan portfolio. There were three loans which were there on our books. And we were looking at — seeing how to look at getting rid of them. In two of the cases, there are foreclosures being discussed and at advanced stages. The third one, so if these two goes away and we are confident that will go away in a couple of quarters. We didn’t want the third loan to be being to be there on the books. And therefore, when we had an opportunity of doing a transaction with an ARC for the third loan, we thought it is necessary to sell it off. Along with that, there were certain old accounts prior to March ’22, which were there of the CV portfolio also that also we actually got rid of. So that was the total of something like all put together roughly INR320 odd crores, which we actually wrote off — so which we removed from the books and sold to an ARC.
On the second question on the bank borrowing, there were — you rightly said that we have borrowed about INR815 crores of banks. It was largely — most of them are banks, some of it are NBFCs. We actually borrowed about INR50 odd crores from Suriyodaya [Phonetic], maybe just to the other banks, State Bank was there, IDFC Bank was there, Canara Bank was there, Karur Vysya was there, DBS was there and apart from that, we had one NBFC that was Tata Capital. So all put together, it had come to about INR815 crores. Tata Capital, the total sanction was INR350 crores, of which we have borrowed about INR230 crores. This INR815 crores considers only INR230 crores of Tata Capital. INR120 crores is yet to be drawn.
You mentioned about Stage 3, yeah, see, I think in — we have responded to the previous queries also. Myself and Karthik in different contexts have mentioned that there has been a uptick in terms of — I mean, there was a reduction in collection efficiencies, which has seen the Stage 3 numbers looking up and that is seen in the overall numbers going from about INR350 odd crores or INR365 crores. So we believe that, that has increased in the current quarter, but we are fairly confident that when collection would see improvement in the current quarter and the next quarter, the numbers would go down. So it’s a temporary fit and we are sure will come out okay.
Prashant
Sure. So both the Stage 3 and the write-off is primarily the CV business, if I understand.
Karthikeyan Srinivasan
Yeah. We don’t have anything else, Prashant. All others we have already…
Prashant
Sure. Sir, what would be the average cost for these term loans of INR815 crores? And just on the ARC, if you could give us the total outstanding and provisions as of September end?
Vinodkumar Panicker
Yes. Fastest or term loan cost would be in the 10%, 10.25% kind of thing. It’s an all in as PAP.
Prashant
Sure.
Karthikeyan Srinivasan
And on the ARC, what did you want, Prashant?
Prashant
So what is the total outstanding SRs and provisions as of September end?
Vinodkumar Panicker
See, overall total was INR1,386 crores and on that, we are carrying a provision of about INR348 crores, which is about 25%.
Prashant
Okay. And there is no P&L hit from this August sale, it’s neutral.
Vinodkumar Panicker
It is neutral.
Prashant
Okay. Thank you so much. Thanks for taking my questions.
Vinodkumar Panicker
Thanks.
Operator
Thank you so much, sir. We have next question from Monshree Soni from MK Ventures. Please go ahead.
Sumit
Yeah, hi. This is Sumit here. Thanks, Randhir, Vinod and Karthik ji for taking this question. So few of the questions have already been addressed in the previous queries. My question is largely from a two, three years perspective. So we’ve been cutting down on our corporate book, our SME book in the past many quarters and now we’ve done this housing transaction and we’ve also started with the microlab pilot as you mentioned with this quarter. So broadly, if I have to look at, say, next two, three years composition, how would our book look like and what percentage of the book will be CV financed? That is one. Secondly, we’ve been giving guidance on ROA front for the next two years. How does that — so with this heavy raising of capital housing deal and also we have raised funds through warrants. So with all that capital coming in, how would our ROA look like? And also one last question on the cost front, which you’ve addressed to an extent is that we’ve added almost 100 branches on the standalone — at standalone and also almost 1,500 employees in the last one year. And with this addition now, going forward, how would our cost-to-income look like? If you can give the guidance on this new structure that would be very helpful. Thank you.
Vinodkumar Panicker
Sumit, I think it’s a long list of queries. I think you should — we should possibly get offline on this. I will take you line-by-line. But having said that, the guidance is that we will — we are looking at growth and we are looking at improved profitability in the quarters to come. It is shown by several factors. I will look at the broad things now. The yields have started going up, number one. The cost of funds, the incremental borrowing cost has gone down. We have started repaying a lot of the high-cost NCDs that we had procure between, let us say, March ’23 to February ’22 — ’24, a lot of it has gone down. In fact, I mentioned about INR1,300 crores having been repaid in the current quarter, of which roughly INR500 odd crores was the high-cost NCDs which were there. So that is improving a lot. I believe that the numbers are — these both will ensure that my net interest income goes up significantly. And therefore, my cost-to-income over a period of time will come down.
One of the factors which would definitely be the reason for the cost-to-income to come down will be the funds which will flow in from the HFC sale which is there because that will definitely mean that the asset which was not getting monitored — was not yielding anything currently on our P&L. Definitely on a consol basis, it was yielding. It will start yielding a substantial, I would say, ROA to us. And therefore, we believe — and we believe that the credit cost will be in that 2% range. Everything else, if it improves the credit cost continuing to be at about 2%, we should see a decent ROA. I would not want to put up a number right now to say what the ROA will be, but then we will see significant improvement in ROA as we go forward.
Sumit
So whatever guidance we had given earlier for ’25 and ’26 given that housing was relatively lower ROA on a stable state basis, but the guidance on ROAs ideally should go up with that moving out and high ROA retail book, CV book now becoming the key driver.
Vinodkumar Panicker
Yeah, definitely it should go up, but then I like — I think Randhir said in a different context that we will possibly try and value it closer to the transaction actually happening and the fund coming in.
Sumit
Sure. Thanks so much.
Vinodkumar Panicker
Thanks, Sumit.
Operator
[Operator Instructions] The next question is from the line of Mr. Yash Mehta from Art Ventures. Please go ahead, sir.
Yash Mehta
Sir, I just had one question. Sir, what is the kind of AUM growth you target in vehicle finance for FY ’25 and FY ’26?
Vinodkumar Panicker
FY ’25, we will end up at around INR9,000 crores overall and ’26 I believe we should end up at around INR12,000 crores company-wide.
Yash Mehta
Okay. Thank you, sir.
Operator
Thank you so much, sir. We have the next question from Yajash Mehta from Angel One Investor Manager. Please go ahead, sir.
Yajash Mehta
Hi, sir, good afternoon. Thanks for the opportunity. Sir, just wanted to check what would be our target mix that we would be eyeing as far as the CV and the other small business loan book is concerned maybe say by FY ’26? And secondly, so just to just dig in, you mentioned that there are certain approvals that are pending as far as the HFC business sale is concerned. So would you expect a very smoother sale there or you feel there could be any hiccups or any issues that could crop up as far as the relevant permissions?
Randhir Singh
Yeah, hi. See, we do not expect hiccups given the past kind of — there have been few transactions done in the past and those have sort of sailed smoothly. So there is no reason for us to believe that there should be any challenges. So we do expect smooth sailing. And I think for the next year, at least for the next one year while of course we have launched this microlab, but the main business would remain CV business and I would expect microlab to be less than about 5% in the near — sort of in the near-term. And I think maybe one year — after one year from now, once we obviously have completed our expansion of some of these microlab branches, I think at that point in time, we’ll be in a much better position to give you guidance of next, second and — next three years. But for now, you should assume that in the near-term, it would be less than 5%.
Yajash Mehta
Okay. Thank you so much.
Randhir Singh
Because we would — obviously, the idea here is that we obviously want a controlled growth and obviously do it in a way which is where we create a solid foundation and then grow. So our attempt would be to have the right processes, right talent, right cost structure. And once we have the results and convenience, that’s when we will sort of accelerate more.
Yajash Mehta
Sir, just the last point. I think last time when I had spoken to Karthikeyan sir, he had said that FY ’26, we would be looking to do close to INR13,000 crores of AUM as far as the CV is concerned and right now it’s mentioned that it’s close to INR12,000 that we’re looking at. Anything that has changed post this quarter results that you feel that probably we’ve revised the guidance?
Randhir Singh
Yes, last time we told about the company-wide 13,000 that’s including the housing and everything we said. Now we have revised it to 12,000 because the housing will not be there.
Yajash Mehta
Okay. Thank you.
Operator
Thank you so much, sir. We have the next question from Anil Tulsiram from ContrarianValue Edge. Please go ahead, sir.
Anil Tulsiram
Yeah. Thanks a lot for the opportunity. Am I audible?
Operator
Yeah, sir you’re audible.
Anil Tulsiram
Yeah. Thank you. Sir, my first question is, I think prior to 2022, you did not have much focus on Tier 3 and Tier 4 cities and was mostly into new CV. And even used CV was also the medium fleet operators. Now our focus has shifted primarily to used CV to the first time buyers in tier cities and below. So do we need to close certain branches? And the second related question is, though our yield on the disbursement is 18%, I’m talking about standalone, our yield on the total AUM is much lower. So by which year do you think the yield on the total AUM will be around 17%, 18%? Yeah. That’s the first two ones.
Randhir Singh
Yeah. Regarding — thank you, Anil. Regarding the branch closures, prudent calls have been taken already. Wherever branches which are not viable, we have already exited those branches. So that’s not a challenge. Even in Bombay, there are large used vehicle transactions that happen at the price where we want. So we don’t see any changes happening there. On the pricing portion of it, I’ll request Vinod to take it.
Vinodkumar Panicker
Yeah, Anil, on the pricing, the overall it looks lower because we still have been carrying a bit of corporate loan and SME loan, which are yielding very little. In fact, corporate is in the range of 12%, 13%, same is the case in the SME. And overall book even today contains about 15% of the portfolio, which has been acquired or generated pre-March ’22 when we used to do a large number of new vehicles. And therefore, it looks slightly lower than the 18% plus. But all the new disbursements that we are doing in CV, in fact, I mentioned about 18.5% being the disbursement yield in the current quarter and that has been the case for at least for the last two, three quarters from about 17.8% that we were in the March — September 2023 quarter. So the overall yields will move towards the 18%, but it could be maybe two, three quarter savings.
Anil Tulsiram
Got it. Sir, and the second question is, under the earlier management, we used to do co-lending partnership with the ICICI Bank for SME and the CV funding. So what is our current strategy for co-lending, so can you elaborate on that?
Randhir Singh
See, we were doing co-lending only for CV with ICICI Bank. Typically, it was a sourcing and servicing arrangement. We suspended in May ’22. We are not keen to do that business. So post May ’22, we have not done anything.
Anil Tulsiram
Sir, can you explain the rationale? Do we not find it viable or banks don’t agree to it? What’s the reason we are not interested?
Randhir Singh
See, two things. One, first and foremost, the only the tier — the plan B of the co-lending is easy option, plus I want to grow my book. So I don’t want to source and service for somebody else. I want that growth inside my own balance sheet. That’s the focus. Thirdly, I am only into used vehicles. The market wants new vehicles. I feel like in today’s scenario, a retail FTU profile cannot afford a new vehicle. So all these factors together, we have stayed away.
Anil Tulsiram
Got it. Sir, the next question is on the used car and used tractors. I think we ceded this business sometime in early 2022. So what’s the progress here? How many branches you are operating, what is the future growth plans? Can you elaborate on this point?
Randhir Singh
Used car, we have grown pan India. Month-on-month, quarter-on-quarter, our numbers have started growing there. On used tractors, we are focused on select markets. Our focus will remain in those 10 markets only, which are where we don’t see any issues around registration where we see end user viability, only these markets we are focusing on.
Anil Tulsiram
Sir, in couple of years, what percentage of book this will be, CV book or total AUM standalone?
Karthikeyan Srinivasan
Just now Randhir answered. On the CV book, you’re talking about used car cars?
Anil Tulsiram
No. As a total AUM, what will be the used cars and the used tractors in couple of years. 5%, 10%?
Karthikeyan Srinivasan
It should not be more than 10% each, 10% on used cars and 5% on used tractors.
Anil Tulsiram
Got it. And sir, I have last couple of questions on the CV finance. I understand 40% to 50% of sourcing is from the channels. So do we plan to expand any direct sourcing that is gone? And related question is the valuation of CVs in-house and outsourced? And the last one is, since we are moving to Tier 3, Tier 4 locations, how are we managing the collections? Is it in-house or outsourced? Because I think this is the cities where we have maximum challenge in the collections.
Karthikeyan Srinivasan
Yeah, I’ll take it one-by-one. Valuation is completely outsourced. It is with pan-India agencies. We have tie-up with three major agencies who are doing the valuation, like Mahindra First Choice kind of companies who are reputed, who are there pan-India. So there is no in-housing of valuation. The second question, collection is completely in-house. Only the repossession is handled by outside people. I’m sorry, the first question I forgot.
Anil Tulsiram
Any plans to expand direct sourcing. I think it’s 40% to 50% is through channels.
Karthikeyan Srinivasan
Yeah, understood. See, I have dropped my average ticket size because I’m going into smaller and smaller products like small commercial and cars. There the — typically this purchase and sale happens through connectors who organize the sale between two individual parties. It’s not an organized market like a car. So there my DSA penetration will go up. Once the market is good, the MNCV sales goes up, I start focusing automatically my direct number will start going up.
Anil Tulsiram
And two last question. Should I join the queue or can I ask?
Karthikeyan Srinivasan
You can ask, we’ll see.
Anil Tulsiram
Yeah. Sir, I think a few quarters back, we said we aim to establish a network of 1,000 branches controlled by 200 ops. So how is this plan going? Are we on track to reach that 1,000 number?
Karthikeyan Srinivasan
1,000, I don’t remember when we said that. Post ’23, we have never said 1,000. We will be at the end of the year around 480 branches. Next year, we are planning, we’ll come back to you on that.
Anil Tulsiram
Okay, sir. And the last question is, there was a comment in the CRISIL report of June 30, 2024 that our total strength remains elevated at 18%, of which we have provided 37%. So can you just help me understand this particular comment?
Vinodkumar Panicker
CRISIL has mentioned that they have included the securitized portfolio also, which when we should — we remove it from the receivables and when CRISIL reports, they add the securitized portfolio also. So the SR value of the — sorry, it’s not the securitized test. I meant the ARC transaction and the SR value of the portfolios. That’s the reason they talk about 18%, while we are speaking about 5% or 4.99%.
Anil Tulsiram
Got it, sir. And we don’t expect any further provisions from the legacy book?
Vinodkumar Panicker
We don’t.
Anil Tulsiram
Thank you, sir. Thanks a lot. Thanks a lot for your time and very detailed question. That’s it. That’s it from my side.
Operator
Thank you, sir. Thank you so much, sir. We have the next question from the line of Mr. Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead, sir.
Vivek Ramakrishnan
Thanks again. I mean, we’ve taken a lot of your time. So in terms of security receipts, is there anything that we can expect in the next one, two quarters because that’s also a consuming our capital? Thanks.
Vinodkumar Panicker
We don’t see any increase. We are going to see inflows against that and we are fairly confident that all the securities that we have on our books will see monetization because that is the — that’s the only way we can possibly ensure that the ROA goes up significantly. And therefore, we are working on that only.
Vivek Ramakrishnan
That’s right, sir. I meant monetization only in a sense. Is there anything expected in the next one, two quarters? Are you hopeful of that?
Vinodkumar Panicker
We are working on it, because unless it actually concludes, we don’t want to make a comment on that.
Vivek Ramakrishnan
Okay. Thank you, sir. Good luck.
Vinodkumar Panicker
Thanks, Vivek. We’ll get into separately on the first topic.
Operator
Thank you so much, sir. Ladies and gentlemen, in the interest of time, that was the last question. I would like to now hand the conference over to Mr. Viral Sanklecha from Orient Capital for closing comments. Please go ahead, sir.
Viral Sanklecha
Thank you, Shilpa. I would like to thank the management for taking the time out for this conference call today and also thanks to all the participants. If you have any queries, please feel free to contact us. We are Orient Capital, Investor Relations Advisors to IndoStar Capital Finance Limited. Thank you so much.
Operator
[Operator Closing Remarks]