Don’t Trade in the Dark—Get Your Pre-Market Report Every Day.Join Now
Search stocks
Muthoot Capital Services Ltd

| Q3 FY26 Earnings Conference Call

BEARISH SENTIMENT

Report Source

⬤24th Jan 26

Summary : Muthoot Capital reported strong Q3 results driven by auto sector growth and new products, but faces analyst skepticism over asset quality and past guidance misses despite tech investments and strategic shifts.

Management Perspective positive : Q3 was an extremely fantastic quarter for the entire automobile sector. We are confident to go along with the growth path. We are strong enough to live through those not so comfortable time and still come out strong.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 was a fantastic quarter for the automobile sector with huge growth.
  2. The company shifted focus to self-sourced business for better yields, reducing co-lending.
  3. New products like construction equipment finance and used 2-wheeler loans were launched.
  4. Retail FD book grew by INR26 crores, aiming for INR100 crores by March end.
  5. Total AUM reached INR3,399 crores, with MCSL portfolio growing 42% year-on-year.

Future Growth Prospects

  1. AUM target of INR10,000 crores by 2028 remains unchanged.
  2. Expect INR4,000 crores in incremental disbursements next year, scaling up new products.
  3. New products (4-wheeler, CV, CE) have higher ticket sizes, boosting disbursement numbers.
  4. Diversification into multiple products and geographies will drive future growth.
  5. Aim to cross INR100 crores in retail FD book by March end.

Management Insights

  1. Q3 saw strong results, covering previous low profitability, with rapid growth expected in Q4.
  2. Significant tech investments in collections, including MCollect app and AI/ML-based strategy builder, are reducing slippages.
  3. LTV has been consciously brought down from 84.57% to 79% to manage credit risk.
  4. Diversifying into safer products like 4-wheelers and CVs is reducing delinquency compared to 2-wheelers.
  5. CRISIL rating upgraded to A+ with a positive outlook.

Signs of Skepticism

  1. Analyst questioned management's 'unrealistic positive commentary' given consistent asset quality pressure.
  2. Analyst stated Q3 results were 'very disappointing' without a large provision release.
  3. Analyst highlighted 'profitless growth' and 'very weak underwriting' despite AUM and top-line growth.
  4. Analyst noted that NPAs have risen from 2.2% to 3.6% year-on-year, despite technology investments.

Risk Factors

  1. High slippages in Q1 led to policy changes and curbs on high-risk locations.
  2. Asset quality pressure has been building consistently, with rising NPAs year-on-year.
  3. Past guidance on ROA and PAT has not been consistently met.
  4. Challenges in North region expansion due to people and attrition issues.
  5. Impairment expenses have significantly increased year-on-year, impacting profitability.

Good To Know

  1. Implemented AI/ML-based collection strategy and Agentic AI telecalling for cost reduction and efficiency.
  2. Reduced cost of funds by 0.53% for NCDs and 0.60% for CPs quarter-on-quarter.
  3. Closed a green bond transaction of INR300 crores for 6 years, enhancing funding diversity.
  4. Maintained LCR at 115-125%, indicating strong liquidity.
  5. Consciously reduced co-lending share due to capital conservation and partner FLDG issues.

Key Drivers

  1. New products drive AUM growth.
  2. Tech-led collections improve asset quality.
  3. Reduced cost of funds boosts margins.
  4. Diversified portfolio enhances stability.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. Discussion on the emergence and growth of the below 25 age group borrower segment (new to credit).
  2. Inquiries about the overall market growth rate for vehicles (around 10%).

Financial Highlights

  1. Questions on achieving 2% ROA in the next year and its calculation.
  2. Inquiries about NII, opex, and impairment costs affecting profitability.
  3. Discussion on the impact of reduced LTV on overall yield and NPA.
  4. Clarification on the company's impairment cost assumptions and recovery rates.

Product Composition

  1. Questions on the growth potential of non-2-wheeler loans (4-wheeler, CV, CE).
  2. Discussion on increasing average ticket sizes with new product additions.
  3. Inquiries about the profile and behavior of new-to-credit customers.

Strategic Considerations

  1. Questions regarding the strategy to reach INR10,000 crore AUM by 2028.
  2. Detailed discussion on policy corrections, location risk scorecards, and CIBIL color coding for underwriting.
  3. Inquiries about the rationale for reducing PCR from 60% to 50% after ECL model redo.
  4. Questions on the effectiveness of technology investments in improving asset quality and reducing slippages.
Muthoot Capital Services Ltd (MUTHOOTCAP) Concall Report Analysis & Insights | Dhanarthi