Muthoot Capital Services Limited

Muthoot Capital Services Limited is strategically repositioning its portfolio by reducing its reliance on the 2-wheeler segment and co-lending. The retail portfolio has grown significantly to INR2,851 crores from INR2,300 crores a year ago, while the co-lending book has shrunk from INR1,000 crores to INR499 crores. The company is actively diversifying into construction equipment, commercial vehicles, and cars, which currently exhibit lower GNPA levels (sub 0.5%) and contribute to a more stable asset base. This shift is supported by internal data analytics for scorecards and a multi-product, multi-bureau strategy.

The company demonstrated strong asset quality improvement, with GNPA reducing by 182 basis points year-on-year to 3.94%, and retail GNPA at 3.49%. The NNPA stands at 1.94% with a PCR of 50%. Muthoot Capital undertook a one-time^📎 cleanup through an ARC deal, selling INR203 crores of non-contributing assets at a 45.61% valuation, including a write-off pool of INR83.18 crores. This proactive measure aims to ensure a clean portfolio for future growth, with INR14 crores expected as recovery from this deal in the current year.

A significant achievement in Q1 FY27 was the CRISIL rating upgrade to AA minus stable, which is expected to further reduce borrowing costs by INR0.40-0.50 in upcoming deals. The cost of funding has already decreased by INR0.80 year-on-year and INR0.43 quarter-on-quarter. The public deposit franchise crossed INR100 crores, providing a stable and granular funding base. The company maintains robust liquidity, with its fund balance at 125-130% of the RBI LCR requirement, and invests excess liquidity in high-quality liquid assets and fixed deposits.

Muthoot Capital is heavily investing in AI-driven technology, with AI bots achieving a 55% resolution rate for X bucket collections. AI is also being used for welcome calling, audit/compliance, and customer complaint segregation. The company is leveraging the extensive Muthoot Pappachan group network, with 15-20% of incremental sourcing currently coming from group entities, targeting 40%. This collaboration, along with digital initiatives like QR codes for on-spot approvals at dealerships, aims to drive efficient customer acquisition and reduce acquisition costs.

Management reiterated its long-term AUM target of INR10,000 crores by FY28-29, with a current year projection of INR4,000-4,200 crores. The pretax ROA target for the current financial year is 2.5%, up from the current 1%. The used car segment, despite its lower yield (18.6%), is expected to breakeven this financial year and achieve an ROA of 1-1.5%. The company anticipates retail GNPA to remain sub-4% and NNPA sub-2% throughout the financial year, supported by disciplined execution and improved portfolio quality.