Muthoot Capital Services Q4 FY26 earnings call

Muthoot Capital Services Limited navigated a challenging macroeconomic environment in FY26, marked by MFI stress, geopolitical tensions, and rising crude oil prices. Despite these headwinds, the Indian economy's resilience and domestic demand provided tailwinds. The company achieved a calibrated growth, focusing on strengthening fundamentals and executing long-term strategic objectives, culminating in an AUM of ₹3,441 crores, including managed book, for FY26.

The company's AUM grew from ₹2,000 crores to ₹3,441 crores in two years, with the sole MCSL portfolio expanding by 29% from ₹2,118 crores to ₹2,758 crores. This growth was achieved despite a conscious decision to reduce the co-lending portfolio from ₹940 crores to ₹595 crores due to asset quality concerns. The company is diversifying its portfolio with encouraging traction in commercial vehicles (AUM up from ₹61.25 crores to ₹240 crores) and used cars (AUM up from ₹86 crores to ₹155 crores), while maintaining a strong presence in 2-wheeler financing.

Muthoot Capital Services demonstrated significant improvement in flow forward, reducing it from 0.80% at the start of the year to 0.43% in Q4 FY26, and monthly slippages by 50% from ₹18 crores to ₹8-9 crores. The reported GNPA (principal outstanding) was 6.41%, impacted by a one-time^📎 recognition of a ₹15.51 crores corporate loan (Up Money) as NPA. Excluding this, the retail GNPA stood at 5.64% (down from 6.45% in Q3), with a retail NNPA of 2.82% (with 50% PCR), indicating strong performance in the core retail book.

The company has made substantial investments in technology and AI, aiming to become a truly digital and AI-driven organization. Key initiatives include 100% AI-driven pre-delinquency calls, AI-assisted collection monitoring, enhanced data-driven underwriting, and 65% application-level STP. These efforts are expected to improve efficiency, reduce costs, and build a sustainable, customer-centric franchise, with the cost-to-income ratio targeted to improve from 85% to 70-75% in the coming year.

Muthoot Capital Services successfully reduced its overall cost of funds by 60 basis points for the financial year, with the Q4 cost of funds at 9.48% (down from 10.09% in Q3). The fixed deposit book also grew to ₹80.83 crores at a cost of 8.83%. While profitability for FY26 was subdued due to significant impairment expenses of ₹76 crores (compared to ₹18-18.5 crores in prior FY) and investments in new verticals, the company targets a pretax ROA of 2-2.5% for the next financial year, anticipating benefits from operational efficiencies and asset quality improvements.

The company is in discussions with equity investors to raise approximately ₹400 crores, with promoters intending to contribute via CCPS, aiming to close the transaction within the next 2-3 months. This capital infusion is crucial for supporting the targeted disbursement of ₹3,000 crores and AUM growth towards ₹4,000-4,500 crores in FY27, and ultimately ₹10,000 crores by FY28-29. Management expressed confidence in their strategy to build a scalable, diversified, and fully digital institution to create long-term shareholder value.