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Muthoot Finance Ltd

| Q2 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤13th Nov 25

Summary : Muthoot Finance reported strong Q2 FY'26 results with significant AUM and PAT growth, driven by gold loan demand and strategic diversification, while navigating competitive and regulatory landscapes.

Management Perspective positive : Management expressed delight over strong Q2 results, upgraded growth guidance, and confidence in their business model and strategy despite competition. They highlighted significant AUM and PAT growth.

Concall Report Analysis & Insights

Business Overview

  1. Consolidated loan assets under management grew 42% year-on-year to Rs. 1,47,673 crores.
  2. Consolidated profit after tax increased 74% year-on-year to Rs. 4,386 crores.
  3. Standalone gold loan AUM grew 47% year-on-year to Rs. 1,32,305 crores.
  4. Q2 FY'26 gold loan AUM increased by 10% (Rs. 11,723 crores).
  5. Non-gold loan portfolio constitutes 12%-15% of consolidated AUM.

Future Growth Prospects

  1. Upgraded FY'26 gold loan growth guidance from 50% to 30%-35%.
  2. Expanding non-gold loan portfolio, including microfinance.
  3. Accelerating digital transformation for faster, seamless credit access.
  4. Enhanced branch network and technology investment for sustained growth.
  5. Plan to open about 150 Belstar branches by year-end.

Management Insights

  1. We are delighted to report a strong quarter with resilient business model and customer trust.
  2. Favorable regulatory changes, higher gold prices, and tighter unsecured credit will boost gold loan demand.
  3. Microfinance sector shows renewed resilience with improved underwriting.
  4. We are focused on gold loans and do not take knee-jerk reactions to new competition.
  5. Gold loan NPAs are fully secured; no loan loss has ever occurred for gold loan companies.

Signs of Skepticism

  1. Management's explanation for yield expansion primarily attributed to old NPA liquidation and portfolio churn, rather than a general increase in fresh disbursement yields, could be seen as a nuanced explanation.
  2. Management downplayed the impact of increasing competition from AAA-rated NBFCs and employee poaching, stating no knee-jerk reactions are needed.

Risk Factors

  1. Belstar Microfinance incurred a loss of Rs. 160 crores due to adverse sector environment.
  2. Competition from banks and other NBFCs remains a constant factor.
  3. Potential for yield compression if competitive pressures intensify.
  4. Challenges in managing NPA churn and recovery efforts for small loans.

Good To Know

  1. Muthoot Home Finance AUM Rs. 3,247 crores, PAT Rs. 10 crores.
  2. Belstar Microfinance losses narrowed from Rs. 128 crores (Q1) to Rs. 32 crores (Q2).
  3. Asia Asset Finance (Sri Lanka) loan portfolio grew 48% YoY, PAT LKR 40 crores.
  4. Muthoot Money Limited loan portfolio grew 63%, PAT Rs. 106 crores.
  5. ECB borrowings are 16% of funding, targeting 25%-30% for stability.

Key Drivers

  1. Favorable RBI gold loan regulations.
  2. Higher gold prices boost demand.
  3. Tighter unsecured credit norms.
  4. Digital transformation for credit access.

Key Analyst Discussions

Competitive Environment

  1. Competition from banks and other NBFCs is not new; there is space for everyone in the growing gold loan market.
  2. Management believes new entrants face operational challenges and often lose interest over time.
  3. Pricing discipline in gold loans remains, with no widespread teaser rate schemes.
  4. Muthoot focuses on customer service and portfolio growth rather than knee-jerk reactions to competition.

Market Trends & Consumer Behavior

  1. Higher gold prices encourage customers to take back their gold, reducing auctions.
  2. Customers take loans based on repayment ability, not always maximum LTV, as they want their gold back.
  3. Company adds around 4.2 lakh new customers quarterly, indicating steady customer acquisition.
  4. Average ticket size is over Rs. 1,17,000, with higher competition from banks at larger ticket sizes.

Financial Highlights

  1. Yield expansion in Q2 was attributed to liquidation of old NPA dues and portfolio churn, adding about Rs. 300 crores.
  2. Steady-state yields are expected to be around 18%-18.5% (plus/minus 0.5%).
  3. Cost of borrowing has started declining, with a 15-20 basis point decline expected from Q1 next year.
  4. NPA levels are expected to remain around 2%-3%, with no loan loss from gold loan NPAs.
  5. Remaining ARC transaction recovery is approximately Rs. 90 crores, potentially more.

Product Composition

  1. RBI allows microfinance companies to have 40% non-microfinance loan portfolio, enabling diversification.
  2. Belstar Microfinance opened 23 gold loan branches in H1 to diversify its loan product portfolio.
  3. Non-gold loan portfolio is about 12%-15% of the consolidated loan board portfolio.
  4. New RBI guidelines allowing 85% LTV for loans up to Rs. 2.5 lakhs will be considered from April next year.

Strategic Considerations

  1. New RBI guidelines are clarifications, not major changes, with new LTV norms to be considered from April next year.
  2. Company plans to continue opening 100-200 branches annually, seeking RBI permissions.
  3. Reinvestment for growth focuses on employee costs and advertisement, including bonuses and increments.
  4. Belstar's next 2 quarters will focus on consolidation and portfolio quality, aiming for zero loss.
  5. Management aims for 25%-30% of funding from ECB borrowings for stability, exploring larger loan markets.
Muthoot Finance Ltd (MUTHOOTFIN) Concall Report Analysis & Insights | Dhanarthi