MUTHOOTFIN Q2 FY26 earnings call.
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Muthoot Finance delivered an exceptional Q2 FY26 with standalone PAT of Rs 2,345 crore, surging 87% YoY, while H1 PAT reached Rs 4,391 crore, up 88% YoY on the back of robust gold loan AUM growth. The company upgraded FY26 gold loan growth guidance from 20% to 30-35%, citing favorable RBI regulatory clarifications, elevated gold prices, and tighter norms for unsecured credit as structural tailwinds. Cost of funds declined ~21bps QoQ to 8.78% with management targeting another 15-20bps decline over the next two quarters. The Weststar Microfinance subsidiary continued to narrow losses from Rs 128 crore in Q1 to Rs 32 crore in Q2, with management guiding breakeven in 2-3 quarters. Despite intensifying competition from new AAA-rated NBFCs entering gold loans, management dismissed the need for knee-jerk pricing responses, asserting pricing discipline across the sector. Key risks include competitive pressure from deep-pocketed new entrants, continued losses at Weststar, and staff poaching by rivals, while gold price volatility compressing LTVs to ~43% remains a monitorable item.
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Guidance to track
- Management upgraded full-year guidance from 20% to 30-35%, citing favorable RBI clarifications on gold loans, higher gold prices, and tighter norms for unsecured credit benefiting the sector.
- Cost of funds declined from 8.99% in Q1 to 8.78% in Q2. Management expects another 15-20bps decline over the next two quarters as banks' MCLR continues to fall and NCD market rates soften.
- Losses narrowed from Rs 128 crore in Q1 to Rs 32 crore in Q2. Management expects the next two quarters to be for consolidation with zero loss targeted, followed by gradual growth resumption.
- Management guided that core yield (excluding NPA churn benefits) should remain in the 18-18.5% range going forward, with occasional lumpiness from NPA resolution accounting for additional yield.
Risks flagged
- Multiple large NBFCs with AAA ratings and deep pockets are entering gold loans, investing in technology and poaching staff. While management dismissed knee-jerk reactions, sustained competitive pressure could eventually impact yields or customer acquisition costs.
- Despite narrowing from Rs 128 crore to Rs 32 crore, Weststar remains loss-making. Management expects another 2-3 quarters of consolidation before breakeven, creating drag on consolidated profitability.
- When asked by an analyst to quantify the impact of a regulatory case involving retail investors who suffered losses, management deflected to a prior exchange filing and stated the matter has nothing to do with Muthoot Finance losses. No specific amount or customer count was provided.
- Average portfolio LTV declined sharply from 60-61% to 43% due to rising gold prices. While this improves security coverage, it also means customers have less incentive to top up existing loans, potentially moderating disbursement growth.
Key quotes
- We are upgrading our financial year 26 gold loan growth guidance from 20% to 30-35%. Favorable regulatory changes in the RBI for gold loan sector, higher gold price and tighter norms for unsecured credit are expected to boost gold loan demand.
- There is space and room for everybody today. The total business is really growing today. The banks have a huge gold portfolio of about 30 trillion and the NBFCs have a portfolio of little less than 3 trillion. So there is lot of business being done by the banks and people may go to bank, may come to NBFCs. It is not that somebody is taking our business.
- Probably next two quarters will also be quarters for consolidation. Probably we may not see big growth there but then consolidation and making the portfolio quality better would be the focus for the next two quarters. Probably after that, after two or three quarters, we should see business growing also.
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