MUTHOOTCAP Q3 FY26 earnings call.
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Muthoot Capital Services reported Q3 FY26 disbursements of ₹626 crore, taking total AUM to ₹3,399 crore, though this represents only 3% QoQ growth despite favorable industry conditions. The strategic shift away from co-lending (down 26% YoY to ₹685 crore) toward self-sourcing (MCSL portfolio up 42% YoY to ₹2,771 crore) impacted overall disbursement volumes. Asset quality improved sequentially with slippage declining from 0.91% in Q1 to 0.65% in Q3, though GNPA remains elevated at 6.45%. The company took a ₹14.09 crore write-off and reduced PCR from 60% to 50%, releasing overlay provisions that supported profitability. Management maintained its 10,000 crore AUM target for 2028 and guided for 4,000 crore incremental disbursements next fiscal year, with expectation of 2% ROA on incremental book. Key risks include elevated impairment costs (₹54.59 crore for 9M), persistent NPA challenges particularly in North India operations, and execution risk on new product scale-up.
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Guidance to track
- Company reaffirmed its strategic objective to reach ₹10,000 crore AUM by 2028, requiring approximately ₹4,000 crore incremental disbursements annually from FY27 onwards.
- Starting from Q1 FY27, quarterly disbursements expected to rise to ₹750-800 crore initially, scaling to ₹1,000 crore+ per quarter by Q3 FY27 (festive season) as new products stabilize.
- Management expects 2% ROA on the 15-16 month old incremental book through combination of higher yields (22.79% on new sourcing), lower cost of funds (reduced 84bps QoQ to 8.82%), and normalized impairment of 1.25%.
- Company aims to grow retail fixed deposit book from current ₹67.28 crore to over ₹100 crore by March 2026, reducing reliance on higher-cost market borrowings.
Risks flagged
- Analyst raised concern that GNPA has risen from 2.2% to 3.6% YoY, with management acknowledging North India operations faced higher slippages due to hiring attrition and collection infrastructure gaps during expansion.
- 9-month impairment of ₹54.59 crore versus just ₹2.82 crore in prior year period. While management expects 1.25% steady-state, analyst questioned whether 1.5-1.6% is more realistic given portfolio seasoning.
- Management deferred the planned direct assignment transaction because co-lending portfolio did not grow to anticipated levels and deal economics did not match requirements, forgoing potential ROA improvement.
- Other expenses reached ₹28 crore in Q3 driven by technology investments and expansion costs. CFO indicated cost discipline measures have been implemented but expense control remains challenging during transition.
Key quotes
- We had a steady disbursement of so last year if you look at we dispersed 2,900 crores. This year because of as I mentioned we had done policy correction and it took some time to stabilize we will end up with about 2,500 crores of disbursement with the market expected to grow at around 10%. This number is immidently possible.
- The only thing that we've missed on is curtailing the NPA cycle... technology is not something that you deploy today and you see the results tomorrow. It takes some amount of time for the technology and the scorecards to work and the machine to learn.
- Asset quality pressure has been building consistently... the guidance which you had given about 60 crores spare for second half that was very unrealistic. This Q3 result is very disappointing because without that big provision release of 20 crores the result would have looked very horrible.
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