IGI Logo

Credit costs elevated; asset quality weakness across segments

Earnings in line; disbursements flat YoY

* CIFC’s 1QFY26 PAT grew ~21% YoY to INR11.4b (in line). NII rose ~24% YoY to ~INR31.8b (in line). Other income increased ~48% YoY to ~INR6.8b (~16% above est.), primarily driven by upfront assignment income of ~INR1.5b (PQ: INR940m).

* Opex rose ~23% YoY to ~INR14.5b (in line) and the cost-income ratio declined ~40pp QoQ to ~37.6% (PQ: 38% and PY: ~39%). PPoP grew ~30% YoY to INR24.1b (in line).

* Yields (calc.) declined ~10bp QoQ to ~14.4%, while CoF (calc.) declined ~10bp QoQ to ~7.8%. NIM declined ~5bp QoQ to ~6.75%.

* 1QFY26 credit costs stood at ~INR8.8b (8% higher than est). This translated into annualized credit costs of ~1.8% (PY: 1.45% and PQ: ~1.6%).

AUM up 24% YoY; disbursements flat YoY

* Business AUM grew 23.6% YoY/4% QoQ to INR1.92t, with newer businesses now forming ~12.5% of the AUM mix.

* Total disbursements were flat YoY and declined ~8% QoQ to ~INR243b. Newer lines of businesses contributed ~17% to the disbursement mix (PQ: ~17% and PY: ~24%). VF disbursements grew ~7% YoY. Disbursements in CSEL further declined as the company is exiting the partnership CSEL business completely. Additionally, the company has slowed down certain low RoTA products in SME segment.

Asset quality deterioration in newer businesses; GS3 rose ~35bp QoQ

* GS3/NS3 deteriorated ~35bp/25bp QoQ to 3.15%/1.8%, while PCR on S3 declined ~160bp QoQ to ~43.7%. ECL/EAD rose to 1.97% (PQ: ~1.84%). GS3 in newer businesses rose ~40bp QoQ to ~2.6% (PQ: 2.2% and PY: 1.3%).

* Stage 2 + Stage 3 (30+ dpd) rose ~85bp QoQ to ~6.2%. In 1QFY26, write-offs stood at ~INR5.1b, translating into ~1.3% of TTM AUM (PY: ~1.1% and PQ: 1.35%).

* CRAR stood at ~20% (Tier 1: ~14.4%) as of Jun'25.

Valuation and view

* CIFC reported a subdued quarter, with flat disbursements YoY and high credit costs. Notwithstanding the seasonality, asset quality weakness was pronounced across all segments, which resulted in significantly high credit costs. Additionally, reported NIMs declined, primarily due to a drop in yields and interest income reversals.

* Key monitorables include: 1) demand outlook for VF segment, 2) growth outlook for CSEL and SBPL and expectations on asset quality in these segments, and 3) the view on asset quality in VF and likely credit costs in this segment. We will revisit our estimates after the earnings call on 1 st Aug’25.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412