Muthoot Cap.Serv

Muthoot Capital Services reported a total AUM of INR3,399 crores for Q3 FY26, marking a 19.95% year-on-year growth from INR2,832 crores in Q3 FY25. Disbursements for the quarter stood at INR626 crores, contributing to a live customer base of close to 6 lakhs. The company strategically shifted its focus towards self-sourcing and group company business, resulting in a 42% year-on-year growth in its owned portfolio to INR2,712 crores. This shift led to a 26% degrowth in the co-lending portfolio to INR685 crores, as the company prioritized higher yields and capital effectiveness.

Asset quality showed significant improvement, with slippages (flow forward to standard AUM) decreasing to 0.65% in Q3, down from 0.80% in Q2 and 0.91% in Q1. Gross NPA stood at 5.93% and Net NPA at 3%. The Provision Coverage Ratio (PCR) was adjusted to 50% from 60% based on a revised ECL model, which indicated a lower Loss Given Default (LGD) of 34%. The company implemented new tech initiatives in collections, including an AI/ML-based strategy builder and Agentic AI-based telecalling, which have reduced physical telecaller strength and improved call efficiency.

The company continued its product diversification strategy, launching construction equipment finance and preparing for the launch of used 2-wheeler loans. These new products, along with used 4-wheeler and CV loans, carry higher average ticket sizes (e.g., INR15 lakhs for CE, INR8 lakhs for CV) compared to the traditional 2-wheeler segment (INR85,000). This diversification is expected to drive future disbursement growth, with a target of INR1,000 crores for 4-wheeler and CV disbursements next year, contributing to the INR10,000 crore AUM target by 2028.

Muthoot Capital maintained a strong capital adequacy ratio (CRAR) of 22.49% and a debt-to-equity ratio of 4.81x. The cost of borrowing decreased to 8.82% in Q3 from 9.66% in Q2, with the XIRR improving to 10.09%. The company secured INR150 crores through a green bond from Axis Bank and saw its retail FD book grow by INR26 crores in Q3 to INR67.28 crores, with a target of INR100 crores by March end. This diversified funding mix and reduced cost of funds are expected to enhance profitability.

Following higher slippages in Q1, the company implemented significant underwriting policy changes. These included a location risk scorecard, a CIBIL-based customer-level scorecard (color-coding customers into green, yellow, orange, red), and a reduction in Loan-to-Value (LTV) from 84.57% to 79%. The number of loan schemes was reduced to three categories (income, asset, no income) to ensure only creditworthy customers are onboarded. While these corrections initially led to a lower-than-expected FY26 AUM growth (revised to INR2,500 crores from INR4,000-4,500 crores), they are expected to yield better asset quality in the long run.

Management reiterated its long-term target of INR10,000 crore AUM by 2028, expressing confidence in achieving this through product diversification and improved underwriting. For FY26, the revised disbursement target is INR2,500 crores, with incremental disbursements of INR4,000 crores targeted for FY27. Q4 FY26 disbursements are expected to be INR600 crores (excluding co-lending), scaling up to INR750-800 crores in Q1 FY27. The company anticipates continued improvement in asset quality, with slippages remaining at or below 0.65%, and expects a good ROA for the upcoming year.