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    Muthoot Microfin Limited

    MUTHOOTMF
    Financial Services·6 Nov 2025
    Management Summary

    Muthoot Microfin delivered a strong Q2 FY26, demonstrating significant improvements in asset quality with GNPA reducing to 4.61% and Net NPA to 1.41%. The company achieved robust disbursement growth of 28.1% QoQ, leading to a 10% QoQ AUM growth to INR12,558 crores. Profitability was restored, driven by a declining credit cost of 3.6% and a 7.6% QoQ increase in PPOP, supported by a favorable credit rating upgrade and strategic portfolio diversification.

    Highlights

    5

    • Disbursements grew by 28.1% QoQ, contributing to a 10% QoQ AUM growth to INR12,558 crores.

    • Asset quality improved significantly with GNPA reducing from 4.85% to 4.61% and Net NPA from 1.58% to 1.41%.

    • Credit cost saw a substantial reduction to 3.6% in Q2 FY26 from 4.3% in Q1 FY26 and 9.4% in FY25.

    • Profitability was restored, with Q2 profit reaching INR30 crores compared to INR6 crores in Q1, and PPOP increased by 7.6% QoQ.

    • Cost of funds declined to 10.6%, with marginal cost at 9.8%, supported by a credit rating upgrade from A+ stable to A+ positive.

    Concerns

    2

    • Operating cost remained stable at 7% in Q2, slightly up from 6.9% in the previous quarter, though management expects it to decline.

    • Cost to income ratio increased to approximately 60% from 47-48% last year, with management targeting low 50s by current financial year-end.

    What Changed1

    vs Q3 FY26

    Guidance items13 → 12 (-1)
    Key financials

    Metrics

    6

    Periods

    2

    Headline

    5
    • AUM
      ₹12,558 Cr
      QoQ+10%
    • GNPA
      4.6%
      QoQ-5%
    • Net NPA
      1.4%
      QoQ-10%
    • NIM
      11.9%
      QoQ+3.5%
    • Credit Cost
      3.6%
      QoQ-16.3%

    Q2

    1
    • Profit
      ₹30 Cr
      QoQ+4%

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Cash ₹1,000 crores · Undrawn ₹3,500 crores

    The company has INR1,000 crores liquidity on the balance sheet and INR1,500 crores with FLDG included, stating no liquidity issues. Sanctions in hand are INR3,500 crores.

    Guidance & targets

    12
    CategoryTargetPriority
    Credit Cost
    Credit Cost
    lower spectrum of 4-6%
    		High
    Credit Cost
    Credit Cost (Normal Scenario)
    2.25% to 2.5%
    		High
    Profitability
    ROA
    upper spectrum of 2%
    		High
    Profitability
    ROA (Exit Quarter)
    around 2%
    		High
    Efficiency
    Cost to Income Ratio
    low 50s, aiming below 50%
    		Medium
    Cost Savings
    Branch Rationalization Savings
    INR50 crores
    		High
    Cost Savings
    In-house Scorecard Cost Savings
    INR2 crores to INR2.5 crores
    		High
    Cost Savings
    Annual Cost Reduction
    INR20 crores
    		High
    Operating Expenses
    Opex
    6% to 6.2%
    		High
    Margins
    NIM
    upper metrics of guidance
    		High
    Portfolio Mix
    Non-JLG Portfolio Share
    10% to 12% of overall portfolio
    		High
    Growth
    Overall Growth
    overachieve 10%
    		High

    Credit Cost Reduction

    next quarter
    Current3.6% in Q2 FY26
    TargetLower than 3.6%

    Why it matters

    Continued reduction in credit cost is a key driver for sustained profitability and a core guidance metric.

    Our credit cost, which is the most important factor that we have been guiding our investors and our well-wishers about it that it has come down to around 3.6%... and it's a sustainable consistent climb down where it was 9.4% in the last financial year, it came down from there to 4.3% in Q1. It's now at 3.6%.

    How to verify

    key_financials.metrics[label='Credit Cost']

    Risks & concerns

    2
    RiskSeverity

    Impact of Natural Calamities on Portfolio

    Despite floods and rains, the portfolio was not affected due to prudent risk management practices and natural calamity insurance, with 95% of claims received. — Management downplayed

    low

    Overleveraged Customers

    Only 0.8% of customers are overleveraged (outstanding > INR2 lakhs), and the company is actively avoiding higher leverage to maintain asset quality. — Management acknowledged

    low

    Q&A highlights

    8

    “Disbursement in the quarter, out of which around INR2,015 crores is IGL business, around INR253 crores is the Individual Loan business and around INR5 crores at that moment for the last quarter is the business which is LAP as well as Gold... we are following a policy where we are giving LAP or Individual Loan, which are larger tickets. There is only one credit line with the customer from Muthoot side.”

    Clarifies the initial scale and strategy for new product segments and how the company manages potential debt aggregation to mitigate risk.

    asked by Shubhranshu Mishra

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and Asset Quality Improvement

    Muthoot Microfin delivered a robust Q2 FY26, restoring profitability and building momentum. Disbursements grew significantly by 28.1% QoQ, contributing to a 10% QoQ growth in AUM, which reached INR12,558 crores. Asset quality showed marked improvement, with GNPA reducing from 4.85% to 4.61% and Net NPA improving from 1.58% to 1.41%. The provision coverage ratio also strengthened from 68% to 70.4%, reflecting prudent risk management.

    02

    Declining Credit Cost and Enhanced Profitability

    The company's credit cost saw a substantial reduction, coming down to 3.6% in Q2 FY26, a significant drop from 4.3% in Q1 FY26 and 9.4% in the previous financial year. This decline, coupled with a 7.6% QoQ increase in PPOP, drove profitability, with Q2 profit reaching INR30 crores compared to INR6 crores in Q1. Management expressed high confidence in achieving an ROA of around 2% for the exit quarter, including the impact of Other Comprehensive Income (OCI) which was INR55.9 crores in Q2.

    03

    Strategic Portfolio Diversification and New Product Growth

    Muthoot Microfin is actively diversifying its portfolio beyond traditional JLG loans, introducing Individual Loans, Micro LAP, and Gold Loans. The Individual Loan portfolio, primarily targeting customers with credit scores above 700, has grown to INR468 crores and currently shows no delinquency. The Gold Loan portfolio stands at INR7 crores, and the LAP portfolio at INR9 crores, with management committed to building on these new segments to achieve a 10-12% non-JLG portfolio share this fiscal year.

    04

    Optimized Funding and Reduced Cost of Funds

    The company successfully reduced its cost of funds to 10.6%, with a marginal cost of 9.8%, aided by a recent credit rating upgrade from A+ stable to A+ positive. This upgrade, along with a global rating for ECB listing, has enabled access to cheaper funds. Muthoot Microfin raised INR1,500 crores through PTCs in the quarter, including a INR500 crore PTC with SBI, and has secured support from both public and private sector banks, leading to a reduction in borrowing costs across various instruments.

    05

    Operational Efficiency and Cost Rationalization Initiatives

    Muthoot Microfin is implementing several initiatives to enhance operational efficiency and reduce costs. This includes a branch rationalization program, where 84 branches have been identified for merger or closure, expected to save INR50 crores in the next financial year. The company has also developed an in-house underwriting scorecard, which is projected to save INR2-2.5 crores annually and improve customer selection, contributing to an overall annual cost reduction of INR20 crores.

    06

    Robust Collection Mechanisms and Digital Adoption

    The company highlighted strong collection performance, with overdue collections improving significantly to INR19 crores per month from an earlier INR6 crores. Individual Loans are managed entirely on a digital eNACH platform, achieving a 95% on-time clearance rate. For bullet repayment products like LAP and Gold Loans, 92% of installments were cleared on the same day in November, demonstrating effective collection infrastructure and a high degree of digital adoption in its processes.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.