Don’t Trade in the Dark—Get Your Pre-Market Report Every Day.Join Now
Search stocks
CSL Finance Ltd

| Q2 and H1 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤14th Nov 25

Summary : CSL Finance reports strong Q2 FY'26 growth driven by SME retail, improved asset quality, and strategic expansion, maintaining a cautiously optimistic outlook despite industry challenges.

Management Perspective positive : We are happy to report visible progress in the first half of this year, with a stronger performance compared to Q1. To conclude, we maintain a cautiously optimistic outlook for the remainder of FY'26. We believe we are all well-placed to achieve our AUM target.

Concall Report Analysis & Insights

Business Overview

  1. AUM grew 29% year-on-year and 8% sequentially to Rs. 1,397 crores in Q2 FY'26.
  2. SME retail disbursements increased 93% year-on-year and 61% sequentially, showing early success.
  3. Wholesale segment continued steady growth, demonstrating business model resilience.
  4. Gross NPS improved to 0.51% from 0.56% in Q1 FY'26, indicating steady asset quality.
  5. Net Interest Income rose 10% year-on-year to Rs. 14.9 crore; PAT increased 37% year-on-year to Rs. 24.5 crore.

Future Growth Prospects

  1. Targeting AUM of Rs. 1,500 to Rs. 1,600 crore by year-end FY'26.
  2. Aim to increase SME AUM to 45% of total by end of FY'27.
  3. Branch network to expand from 45 to 60 by year-end, with 10-15 new branches next fiscal.
  4. Per branch disbursement target increased to Rs. 50 lakh from Rs. 25-35 lakh.
  5. New lower IRR product introduced to cater to a broader customer base.

Management Insights

  1. Implemented corrective measures in SME retail, refining credit policies and underwriting.
  2. Expanded lender base to 34 partners, including public, private, and small finance banks.
  3. Liquidity position remains strong with Rs. 111.5 crore balance sheet liquidity.
  4. Cost of fresh borrowings reduced by 60-70 basis points since year start.
  5. Strengthened credit, operations, and business teams with targeted mid-management hiring.

Signs of Skepticism

  1. Higher PAT growth is partly attributed to deferred tax adjustments, not solely operational.
  2. NIM compression was explained by negative carry and lumpy wholesale business.
  3. AUM in Rajasthan and Gujarat is flat despite branch additions due to foreclosures.
  4. Management did not provide a specific AUM target beyond FY'26, only hinting at better growth.
  5. Acknowledged that some branches were realigned, not closed, due to cost inefficiency.

Risk Factors

  1. Broader industry faces challenges like over-leveraged borrower profiles.
  2. Muted income growth persists in the MSME ecosystem.
  3. Foreclosure rates are higher in Rajasthan and Gujarat regions.
  4. Higher PAT growth partly due to deferred tax adjustments.
  5. Employee expenses increased short-term due to targeted hiring.

Good To Know

  1. Two new branches and several spoke locations were added in Q2.
  2. Lender base expanded to 34 partners, diversifying funding profile.
  3. Attrition rates, a challenge for the NBFC sector, are now under control.
  4. Company's entire portfolio, both wholesale and retail, is 100% secured.
  5. Focus on reducing disbursement time to 7-15 days for Rs. 20-25 lakh files.

Key Drivers

  1. SME retail growth drives AUM expansion.
  2. Improved asset quality enhances financial stability.
  3. Lower borrowing costs boost profitability.
  4. Branch expansion increases market reach.

Key Analyst Discussions

Competitive Environment

  1. Competition is increasing as MFIs shift to secured micro-lending (0-10 lakh ticket size).
  2. CSL focuses on 10-15 lakh ticket size, where competition is less intense.
  3. Company believes its strong processes and SARFAESI tool provide a competitive edge.
  4. New entrants lack the experience and processes for secured lending.
  5. Geographical penetration is still low, offering scope for expansion.

Market Trends & Consumer Behavior

  1. Broader industry faces challenges with over-leveraged borrowers and muted MSME income.
  2. Industry peers have tightened policies and attrition rates have come down.
  3. Aggressive lending in MFI and unsecured portfolios caused spillover effects.
  4. External environment expected to improve as negative effects subside.
  5. Management remains cautiously optimistic about external market conditions.

Financial Highlights

  1. NIMs compressed due to negative carry from surplus liquidity and lumpy disbursements.
  2. Cost of borrowing expected to decrease by 25-30 basis points, improving NIMS.
  3. Over 50% of borrowings have been repriced, with 50% still remaining.
  4. PBT provides a clearer view of underlying performance, up 17% year-on-year.
  5. Disbursement in SME is up 63% QoQ and 93% YoY, while wholesale is lumpy.

Product Composition

  1. Introduced a new product with a slightly lower IRR (around 16%) for 10-15% of SME portfolio.
  2. Weighted average IR expected to remain at 18-18.25% overall.
  3. SME portfolio is entirely fixed interest rate, while 80-85% of borrowings are floating.
  4. Focus on linking fresh borrowings to repo and T-bills for faster repricing.
  5. Wholesale segment offers reasonably good IRR, often fixed.

Strategic Considerations

  1. SME disbursement growth is sustainable, targeting Rs. 50 lakh per branch.
  2. Company is infrastructure and people-wise ready for planned growth and branch expansion.
  3. Operating leverage expected to improve, reducing operating costs as AUM grows.
  4. Foreclosures are a factor in AUM stability, especially in Rajasthan and Gujarat.
  5. Focus on organic growth, but open to evaluating inorganic opportunities with limited risk.