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.