Muthoot Finance Limited

Muthoot Finance reported an impressive start to the year, with standalone loan assets under management (AUM) reaching a record INR1,20,031 crores. This was driven by a robust 40% year-on-year growth in gold loans, and a 10% quarter-on-quarter increase of INR10,238 crores. The company's standalone profit after tax (PAT) for the quarter grew significantly by 90% to INR2,046 crores, reaffirming its leadership in the gold loan segment. The company also crossed a market capitalization of INR1 trillion during the quarter.

The company's yields expanded by 100 basis points sequentially to 19.56% in Q1 FY26. This expansion was significantly aided by INR400 crores in extra interest income, comprising INR300 crores from accrued interest on NPA recoveries and INR100 crores from ARC sales. Management noted that the gold loan business continues to benefit from a pan-India branch network, strong brand equity, and deep customer engagement. The average Loan-to-Value (LTV) on the book currently stands at 63%.

Muthoot's subsidiaries also contributed positively. Belstar Microfinance maintained a Stage 3 loan asset at 4.4% and opened 10 gold loan branches in Q1, with plans to add 50 more immediately. Muthoot Home Finance's loan AUM grew 41% year-on-year to INR3,096 crores, up from INR2,100 crores in the same quarter last year. Muthoot Money's loan AUM saw remarkable growth of 202% year-on-year, reaching INR5,000 crores in Q2 (vs INR1,657 crores in Q1), though its GNPA increased to 0.96% in Q1. The non-gold loan business currently constitutes 13-14% of the total, with a target to increase it to 15-20%.

The company achieved a significant net NPA reduction of approximately INR700 crores. Management clarified that this reduction was primarily due to customers coming forward to redeem their gold after being given extended time, rather than aggressive recovery measures. This highlights the inherent security of gold-backed loans. The interest accrued on these recoveries, along with proceeds from ARC sales, contributed to the quarter's strong interest income.

Management views the recent RBI guidelines on gold loans as 'gold loan business friendly,' providing greater transparency and streamlining the lending process. The revised guidelines offer more flexibility and product offerings, particularly with the LTV for loans up to INR2.5 lakhs being revised from 75% to 85%. This change is expected to allow the company to offer more diverse products and cater to a broader customer base, with 85% of customers currently having loans below INR2.5 lakhs.

Operating expenses are expected to remain almost stable, increasing only by the rate of inflation, indicating good cost management and operational leverage as AUM grows. The company also benefited from an 11 basis points sequential decline in borrowing costs, with recent 2.5-year borrowings at approximately 7.85%. Management anticipates further reductions in borrowing costs as MCLR rates are expected to come down in the next 3-6 months. Despite rapid growth, the Capital Adequacy Ratio (CRAR) is around 22%, and management expressed comfort with the current capital position to support growth and dividend payouts.

While the sequential net growth in active customers was noted to be 1.4% (down from 2% in prior quarters), management clarified that new customer additions actually increased to 4.24 lakhs this quarter (from 4.1 lakhs last quarter). They explained that the net growth figure reflects both new customers coming in and old customers exiting. The discussion also touched upon gold tonnage, noting that as gold prices rise and LTV increases, customers tend to tender lower amounts of gold for the same loan value, impacting tonnage figures but not necessarily AUM growth.