Muthoot Capital Services Limited — Q3 FY26 earnings call

Call held 22 Jan 2026

Management summary

Muthoot Capital Services reported a strong Q3 FY26, driven by a strategic shift towards self-sourced business and product diversification, leading to a 19.9% YoY AUM growth to INR3,399 crores. The company significantly improved its asset quality with slippages reducing to 0.65% and lowered its cost of funds to 8.82%. However, overall disbursements were impacted by a conscious reduction in co-lending, and increased impairment expenses affected profitability, drawing analyst scrutiny regarding past guidance and underwriting quality.

Highlights

  • Q3 was a 'fantastic quarter' for the auto sector, benefiting the company.

  • Muthoot Capital's self-sourced business grew 20-25%, with a strategic shift away from co-lending.

  • New products (construction equipment finance, used 2-wheeler) launched or in UAT, expanding product portfolio.

  • Implementation of AI/ML-based collection strategy and Agentic AI-based telecalling significantly improved collection efficiency and reduced costs.

  • CRISIL upgraded rating to A+ with a positive outlook.

Concerns

  • Overall disbursement numbers saw a slight drop due to a conscious reduction in co-lending share (70% degrowth YoY).

  • Impairment expense for 9M FY26 increased significantly to INR54.59 crores from INR2.82 crores in 9M FY25, impacting profitability.

  • Analyst concern regarding underwriting quality and rising NPAs, despite management's efforts.

  • Previous guidance for FY26 AUM (INR4,500 crores) and PAT (INR60 crores for H2) were not met, leading to analyst skepticism.

Key financials

3 periods

Headline

  • AUM
    ₹3,399 Cr
    YoY +19.9%
  • Balance Sheet Size
    ₹3,944 Cr
  • Borrowing
    ₹3,198 Cr
  • Debt to Equity
    4.81×
  • CRAR
    22.5%
  • GNPA
    5.9%
  • NNPA
    3%
  • MCSL Portfolio AUM
    ₹2,712 Cr
    YoY +42%
  • Co-lending Portfolio AUM
    ₹685 Cr
    YoY -26%
  • Blended Yield
    20.4%
  • PCR
    50%

Q3

  • Disbursement
    ₹626 Cr
    YoY -25.9%
  • Cost of Funds
    8.8%
  • Slippage Rate
    0.65%

9M FY26

  • Revenue
    ₹463.85 Cr
    YoY +37.9%
  • Impairment Expense
    ₹54.59 Cr
    YoY +1,836%

What they filed

Q1 FY27: revenue up 7.1%, net profit up 273.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue109 126 137 145 154 +41%155 +23%166 +21%156 +7%
Net profit16 13 6 -5 3 −82%8 −39%5 −16%8 +274%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹2,680 Cr Total
  • 2-wheeler ₹2,308 Cr 86.1%
  • CV ₹186 Cr 6.9%
  • Used 4-wheeler ₹136 Cr 5.1%
  • Loyalty Loan ₹50 Cr 1.9%

Capital allocation

high confidence
  • Debt Gross ₹3,198 Cr Cost 8.8%
    • New borrowing Additional facilities borrowed in Q3, comprising INR55 crores short term and INR382 crores long term. ₹437.44 Cr
    • New borrowing Green bond transaction with Axis Bank, part of a INR300 crores fund. ₹150 Cr
    The borrowing for the company stood at INR3,198 crores, which took debt to equity of the company at 4.81x
  • Liquidity Liquidity disclosed LCR is hovering around 115-125%, well above RBI's 100% requirement.
    We are hovering somewhere around 115 to 125 percentage, which is a very, very good sign. The term sheets and the sanction on hand will -- has already provided us enough strength to say that we'll be able to maintain this LCR for the next 2 quarters as well.

Guidance & targets

AUM

  • Total AUM AUM · by 2028 · High confidence INR10,000 crores
    So, the earlier guidance that we had given as a part of our strategic objective is to become a INR10,000 crore AUM company by 2028. We are not revising our guidance.

    — Mathews Markose

Retail FD Book

  • Retail FD Book Retail FD Book · by end of March (FY26) · High confidence cross INR100 crores
    And our aim is to cross INR100 crores by the end of March, and that is where we will be reaching.

    — Mathews Markose

Disbursement

  • Total Disbursement Disbursement · FY26 · High confidence closer to INR2,500 crores

    Previously INR4,500 crores → closer to INR2,500 crores

    So this year, we should end up closer to INR4,000 crores as against our initial estimate of close to INR4,500 crores, and we've kept it lower because after seeing the Q1 numbers on slippages, we brought in a lot of changes in our underwriting policies, and some of the locations which were deemed as higher risk, we put some curbs there. ... This year, we should close with around INR2,500 crores of disbursement.

    — Mathews Markose

  • Additional Incremental Disbursement Disbursement · FY27 onwards · High confidence INR4,000 crores
    And next year onwards, we should look at anything close to INR4,000 crores as additional incremental disbursement.

    — Mathews Markose

  • Q4 FY26 Disbursement Disbursement · Q4 FY26 · High confidence INR600 crores
    We want to without taking any co-lending, we want to restrict it to INR600 crores for Q4.

    — Mathews Markose

  • Q1 FY27 Disbursement Disbursement · Q1 FY27 · Medium confidence INR750-800 crores
    So obviously, not from Q1. So the INR600 crores can go to, say, the INR750 crores, INR800 crores in Q1.

    — Mathews Markose

  • 4-wheeler and CV Disbursement Disbursement · next year (FY27) · High confidence INR1,000 crores
    So, our focus area is on the 4-wheeler and CV. We should next year try to close INR1,000 crores plus disbursement on both these products put together.

    — Mathews Markose

Profitability

  • ROA Profitability · upcoming year (FY27) · Low confidence good ROA
    With this trend, I am expecting a good ROA for the upcoming year as well.

    — Ramandeep Gill

Asset Quality

  • Slippages Asset Quality · next year (FY27) · Medium confidence 0.65% or lower
    I'm expecting the same slippages to continue, right -- sorry, I'm expecting some same slippages, which means 0.65%, will become -- either will stay 0.65% or lower

    — Ramandeep Gill

  • PCR Asset Quality · ongoing · High confidence 50%

    Previously 60% → 50%

    The PCR of the company was at 60 percentage, and that too, from last 12 to 15 months. And seeing the trend wherein the roll forward to NPA has also been brought down from 0.91 percentage to 0.65%. The company has taken a conscious call of bringing down the PCR from 60 to 50 percentage, and therefore, the release in the overlay has happened in this quarter.

    — Ramandeep Gill

Cost of Funds

  • Cost of Funds Cost of Funds · next 12 to 18 months · Medium confidence go down
    And number three, my cost of funds, which is going down that we have seen in this year, the first 9 months, I'm expecting the same trend to continue for the next 12 to 18 months.

    — Ramandeep Gill

What to watch in Q4 FY26

Retail FD Book Growth

by March end (FY26)
Current INR67.28 crores
Target cross INR100 crores

Why it matters

Achievement of this target indicates success in diversifying funding sources and retail liability strategy.

And our aim is to cross INR100 crores by the end of March, and that is where we will be reaching.

Risks & concerns

  • Asset quality and rising NPAs

    high

    Analyst highlighted rising NPAs and questioned underwriting quality, despite management's efforts to improve collection and underwriting.

    Analyst acknowledged

  • Credibility of past guidance and unmet targets

    medium

    Analyst pointed out that previous AUM and PAT guidance were not met, leading to skepticism about future projections.

    Analyst acknowledged

  • Slippages in the North region

    medium

    Management admitted that expansion in the North led to higher attrition and slippages, impacting overall asset quality.

    Management acknowledged

Q&A highlights

5 direct
Loan book growth and ROA targets for FY27/28 Partial
So, the earlier guidance that we had given as a part of our strategic objective is to become a INR10,000 crore AUM company by 2028. We are not revising our guidance. So according to that, we will calibrate our so next month, when we go into our budget session, we will build our budgets around that number so that we don't miss that 2028 mark of INR10,000 crores.

Analyst pushed for specific ROA targets and future loan book growth, which management addressed with AUM targets but remained qualitative on ROA for the upcoming year.

Asked by Amit Mehendale

Discrepancy in NII and Opex calculation leading to ROA concerns Direct
Yes, yes, you're right. Sir, 2 things will contribute to this NII, which I have also tried and shown there, but I will explain during -- with the maths only here. The incremental ROAs, I am at 20.42 percentage, which I have said in my call. And my incremental ROA has become 22.79 percentage.

Analyst challenged management's ROA claims based on NII and Opex, prompting management to clarify the drivers of ROA improvement.

Asked by Amit Mehendale

Rationale for PCR drop from 60% to 50% Direct
I think Raman had explained, we did a complete redo of our ECL model, and it was done by one of the big 4s. And they looked at last 8-year data and looked at our LGD, it was coming to only 34%. So, when that was at 34%, we didn't see a reason to keep PCR at such a high level, and that was a conscious call that we discussed internally and with the Board and finally decided to take that call to bring it down to 50%.

Analyst questioned the significant reduction in PCR, which management explained was due to a revised ECL model and improved LGD assessment.

Asked by Rohan Mandora

Step-up in disbursement run rate for next year Direct
Plus the addition of new products, which are at a much higher ticket size. So, our principal product used to be 2-wheeler for a long time, which had an average ticket size of INR85,000. Our car loan average ticket size is closer to INR5 lakhs, CV is around INR8 lakhs. And CE that we have recently introduced has an average ticket size of closer to INR15 lakhs. So, the higher ticket size products and the portfolio growing there will naturally help us increase our disbursement numbers.

Analyst asked how the company plans to significantly increase disbursement, and management attributed it to new higher-ticket products and policy corrections.

Asked by Rohan Mandora

Underwriting quality and rising NPAs Direct
Yes, yes, we are doing that. We have already done that also. So, you will see the results in the coming quarters on that.

Analyst directly challenged the company's underwriting quality and rising NPAs, indicating a persistent concern despite management's claims of improvements.

Asked by Tejas Khandelwal

Q3 results being disappointing without provision release Partial
And that is also a result of why our ROAs have also gone down. One of the commentary that we had given last time is about we will be able to close a DA, which as our CFO clarified that the DA transaction did not happen because our overall AUM did not grow to the extent that we had anticipated or we curtailed the growth.

Analyst criticized the Q3 results, suggesting they were only positive due to a provision release, and questioned the credibility of past guidance.

Asked by Tejas Khandelwal

Other expenses increase and future trajectory Direct
So, if you compare the quarter versus quarter, yes, you might see that other expenses has gone up. And wherein the other expense is basically towards the function of that what all we are investing towards all the technology, towards my software, wherein the expansion side of it has already been stopped now, wherein whatever we wanted to incur for the expansion side, that has already been done.

Analyst sought clarification on the increase in other expenses and whether this trend would continue, which management attributed to one-time tech investments.

Asked by Tejas Khandelwal

3 min read 7 chapters

Detailed narrative

Q3 FY26 Performance Overview

Muthoot Capital Services reported a total AUM of INR3,399 crores in Q3 FY26, marking a 19.9% year-on-year growth from INR2,832 crores in Q3 FY25. The company's balance sheet size reached INR3,944 crores, with borrowings at INR3,198 crores and a debt-to-equity ratio of 4.81x. CRAR stood at 22.49%, while GNPA and NNPA were reported at 5.93% and 3% respectively. Disbursements for the quarter were INR626 crores, a decrease from INR845 crores in Q3 FY25, primarily due to a strategic shift away from co-lending.

Strategic Shift to Self-Sourcing and Reduced Co-lending

The company has drastically shifted its focus towards self-sourcing, with Muthoot Capital Services' owned business growing by 20-25%. This strategic move aims to improve capital effectiveness and yield. Consequently, the co-lending portfolio saw a significant degrowth of 70% year-on-year, reducing its share from INR939 crores to INR685 crores. This reduction, while impacting overall disbursement numbers, is a conscious decision to prioritize higher-yield, self-sourced business and manage capital more effectively.

Technology and Collection Initiatives

Muthoot Capital has made significant tech investments in its collection process. A new collection app, MCollect, has been adopted and issued to the sales team for the first 6-month collections. An AI/ML-based strategy builder has been implemented to predict optimal customer contact methods, leading to improved collection efficiency and reduced slippages from 0.91% in Q1 to 0.65% in Q3. Agentic AI-based telecalling has also been introduced, reducing physical telecaller strength, cutting costs, and drastically improving call volumes.

Product Diversification and Retail FD Growth

The company is expanding its product portfolio beyond 2-wheelers, launching construction equipment finance and preparing to go live with used 2-wheeler products. The 4-wheeler and CV segments have shown remarkable year-on-year growth of 84% and 476% respectively. The retail FD book grew by INR26 crores in the quarter, with a target to cross INR100 crores by March end, indicating success in diversifying funding sources.

Asset Quality Management and Provisioning Strategy

Slippages (flow forward to standard AUM) have consistently decreased from 0.91% in Q1 to 0.65% in Q3. The company took a conscious decision to reduce its Provision Coverage Ratio (PCR) from 60% to 50% based on a revised ECL model and improved LGD assessment, which was done with the help of a 'Big 4' consultant. This resulted in a release of overlay provisions in the quarter. However, impairment expenses for 9M FY26 increased significantly to INR54.59 crores from INR2.82 crores in 9M FY25.

Funding and Liquidity Position

Muthoot Capital successfully closed a green bond transaction, securing INR150 crores from Axis Bank as part of a larger INR300 crores fund. The company also raised INR437.44 crores in additional facilities, comprising INR55 crores short-term and INR382 crores long-term. The cost of funds improved to 8.82% in Q3 from 9.66% in Q2. The Liquidity Coverage Ratio (LCR) is maintained at 115-125%, well above the RBI's 100% requirement, indicating a strong liquidity position.

Future Outlook and Growth Targets

The company reiterated its strategic objective to achieve INR10,000 crores AUM by 2028. For FY26, the revised disbursement target is closer to INR2,500 crores (down from an initial INR4,500 crores due to policy corrections). For FY27 onwards, the company aims for an additional incremental disbursement of INR4,000 crores. Specifically, INR600 crores is targeted for Q4 FY26, and INR750-800 crores for Q1 FY27. The 4-wheeler and CV segments are expected to contribute INR1,000 crores in disbursement in FY27.

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