Muthoot Finance Limited (MUTHOOTFIN.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Muthoot Finance Q1 FY '26 Earnings Conference Call hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities India Private Limited. Thank you and over to you, ma'am.

Thank you, Anushka. Good evening, everyone. On behalf of Elara Securities, we welcome you all to Q1 FY '26 Earnings Conference Call of Muthoot Finance. From the esteemed management, we have with us today Mr. George Alexander Muthoot, Managing Director, Mr. Alexander George, Whole-Time Director; Mr. George M. Alexander, Whole-time Director; Mr. George M. George, Whole-Time Director; Mr. George M. Jacob, Whole-Time Director; Mr. Eapen Alexander, Executive Director; Mr. K.R. Bijimon, Executive Director; Mr. Oommen K. Mammen, Chief Financial Officer. We express our gratitude towards the esteemed management of Muthoot Finance to provide us the opportunity today to host this conference call. Without further ado, I now hand over the call to Mr. George Alexander Muthoot, Managing Director for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you. Good evening to all. This is George Alexander Muthoot, Managing Director of Muthoot Finance. Today, we had our company's Board meeting for the Q1 '25-'26. We just -- the meeting just got over, and I am here to present the report for the Q1 performance of Muthoot Finance. We had an impressive start to the year, and our standalone loan assets under management has reached a record of INR 1,20,031 crores, driven by a robust 40% year-on year growth in gold loan of INR 32,272 crores for the full year and a 10% quarter-on-quarter increase of INR 10,238 crores. This is a testament to our 3-pronged strategy to focus on disbursements, operational efficiency and maintaining healthy margins. As a result, our stand-alone profit after tax for this quarter grew by 90% to reach INR 2,046 crores. These results reaffirm our leadership in the gold loan segment, supported by a pan-India branch network, strong brand equity and deeper customer engagement. We are encouraged by the growing acceptance of home loan as a reliable, accessible and inclusive form of credit. Looking ahead, we are accelerating our efforts to digitally enable our gold loan offerings, making credit access faster, more seamless and more inclusive. Our technology investments are already enhancing our customer experience, reducing turnaround times and strengthening operational efficiency. The recent RBI guidelines on gold loans will bring greater transparency and further streamline the lending process. While the recent industry cuts create a favorable credit environment, with these supportive tailwinds and our continued focus on innovation and services, we are well positioned to sustain strong growth through financial year '25-'26 and beyond. This year, we have seen -- we have crossed the market capitalization of INR 1 trillion. We opened 22 branches and won many rewards and accolades, Their subsidiaries are also doing well. The Belstar Microfinance has opened 10 gold loan branches in the Q1 to diversify the loan portfolio. It has maintained a Stage 3 loan asset at 4.4%, which is consistent with the industry peers. And Muthoot Home Finance, the loan AUM stands at INR 3,096 crores versus INR 2,100 crores in the last year same quarter, a 41% year-on-year growth. Muthoot Money, the loan AUM at INR 5,000 crores in Q2 versus INR 1,657 crores in Q1, a growth of 202% year-on-year. Continued decline in NPA through physical collections witnessed consistently throughout the year. GNPA has increased to 0.96 in Q1, that's for Muthoot Money. The branch network also increased to 997 during this quarter. Overall, this year has been quite good for Muthoot and I think all the other details are there in the slides and presentations we have given. I will halt now, I will stop now and may be wait for your clarifications and questions. Thank you.

[Operator Instructions] The first question is from the line of Raghav from AMBIT Capital.

I have a few questions. One is, this quarter, the yields have expanded by 100 basis points sequentially. And I also noticed that there have been some significant NPA recoveries of about INR 550 crores on a net basis. So my question is, was there any booking of income in the interest income line related to this NPA recovery, if yes, how much was it?

That's this is your question. Any more questions?

Yes. So the other question I had was the sequential addition in customers, I noticed that previously we were running or growing at about 2% in Q4 and Q3 on a quarter-on-quarter basis. This time, it has come down to 1.4%. So what will be your guidance going ahead? Those were my only 2 questions.

The second question, I did not understand. What is this 2% and 1.4%?

So if you look at your number of active customers in Q3 and Q4.

Number of customers. Understood. So regarding the yield, the yield is 19.56% and usually our yield is 18.5%. This year -- this quarter, the yield has been better, as you exactly said, there has been an INR 700 crore NPA reduction. And the interest accrued on that, which has come into the P&L is around INR 300 crores. Number two, we have given some of our loans -- sold some of our loans to the ARC about a year back. And now today, all the principal has been received in the last quarters. So this quarter, we received INR 100 crores from the ARC, which is fully towards the interest. So INR 300 crores plus INR 100, INR 400 crores is the extra interest we have received this year, and that should account for the higher yield of 100 basis points more. And about the number of customers, just ...

So sequentially, I think the outstanding number of customers is, it has increased by about 1 percentage. We've been repeatedly saying that you should look at the new customer additions, which is actually the net outstanding number of new customers added is about 4.2...

I'm still here. I could not listen to the management in the last 10 seconds. [Technical Difficulty]

Sorry to interrupt. The line for the management has been disconnected. Please wait till I connect the management back. [Audio Gap] Ladies and gentlemen, the line for the management has been reconnected. Thank you. Raghav, you may proceed.

Yes, I think the management was saying something...

No. You heard about the interest yield, et cetera?

Yes, yes. I heard the INR 400 crore...

So the next point was about the customer addition. The new customer addition in last quarter was -- last quarter, not this quarter, last quarter was 4.1 lakhs and this quarter, it is like 4.24 lakhs. So there is increase in the number of new customer additions. What you said is only the net growth in the customers. So new customers are coming and old customers are going out. So we are better off in the new customer addition. That's what I wanted to convey.

Just one more follow-up question, if I remove this INR 400 crores of exceptional income, right? And when I also look at -- so is there any competitive pressure because this -- after removing INR 400 crores, the yields are somewhere around 18.15%, 18.2%, which is lower -- the run rate which you had in last week...

INR 400 crores is just an approximate number.

Maybe INR 300 crores to roughly around INR 300 crores, INR 350 crores.

Understood. Okay. And generally, what is your sense in terms of competition, one of the other guys in gold loan says that they want to reduce rates and be more [Technical Difficulty] Are you seeing any such competitive activity on the ground?

So the gold loan business is to the flavor of the market. So all competitions are trying to come there. So people come with different strategies. Muthoot has been a long player in this, a very old player in this. And we have our own strategies. And I don't think we need to respond to small strategy changes by others. We will go our way, as we are -- we have been in the market for such a long time. I don't think these things matter to us.

We take the next question from the line of Mona Khetan from Dolat Capital.

Congratulations on a strong quarter. So just back on the...

Sorry to interrupt, Ms. Mona. Your voice is breaking. Could you please fix that?

Any better?

Much better.

Yes. So firstly, just confirm back on the yield. So except extra interest that you earned this quarter, is it fair to assume that your yields would have been similar in the same range as what you've been reporting?

Yes, yes, correct. Yes. It would have been the same as what we were continuing in the last quarters. Yes, you are right.

Sure. Got it. And secondly, just touching on the final guidelines on gold loans. I understand they're far more relaxed versus the dark circular. But to take view as to what changes are you entertaining in terms of LTV once it comes into effect?

So I think if you want to know my view on the new regulation, I feel it is quite gold loan business friendly. The new revised guidelines are quite gold loan business friendly. It's actually -- can you hear us?

Yes.

It gives more flexibility and actually more product offering to the customer in the new regulation. And up to INR 2.5 lakhs, the LTV has been revised from 75% to 85%. So any company who wants to give even up to 85%, there is flexibility. That is what I said, it gives more flexibility and we can give more products to the customer also. And for your information, 85% of customers are below INR 2.5 lakhs.

Okay. So because this -- so just two follow-ups here. Will it lead to movement towards higher ticket sizes because in the large ticket sizes, there is not much LTV, especially it is given for the income generating purpose? So does it lead to increase in ticket sizes across lenders, given the guideline? And also, for this sub INR 2.5 lakh segment, does the effective LTV, which you said, alluding to 55% earlier, does the effective LTV, including the interest component, does that come down to, say, 65% versus the 75% which we had the cap we had earlier pre-guideline or what we have today...

I'm not sure what is this 55% and 65%, et cetera. Today the maximum LTV, which can be given is 75%. What I said is up to INR 2.5 lakhs, there is flexibility to go up to 85% LTV. That's what I meant. And about the bigger ticket customers, yes, bigger ticket customers are there now also. And not that every will take the 75% or 85%. They'll take only what they want. Sometimes it may be 60%, sometimes, it may be 70%. Sometimes, it may be 75%.

And will it also lead to like increased product offerings like more of pure multiproducts, given that it may not have the inclusion of interest component?

So as I said earlier, it gives us flexibility, and we can offer more products. Anyway, this is all kicking in only by next March.

Right, right. And just one last data keeping question. What would be the share of the loans above INR 5 lakhs, loan amount, AUM mix over INR 5 lakhs tickets?

What about above INR 3 lakhs, I'm having, that is about 40%.

Okay. If you could -- during the call, if you could share at some point the above INR 5 lakh also, that will be very helpful.

I don't have that information.

That is not available here today.

[Operator Instructions] We take the next question from the line of Shreepal Doshi from Equirus.

My question was on ticket size. So incrementally, since the benefit of the newer regulation is for, let's say, less than INR 2.5 lakh ticket size, would we, as an organization, also focus more in the smaller ticket size versus earlier where we were active across all ticket sizes. Will that be a thought process?

No, we have not thought about it because anyway we feel that we cater to all the type of customers, the small customer, the big customer, everybody, because through our branches, and through our -- what should I say, our legacy of operations, we have all these customers. So we have not talked about giving only to small customers or only to big customers, it cater to all and we have definitely have a mix of all these customers going forward. We haven't thought about that, sir.

Got it, sir. Sir, the second question was on the rate side. So I mean, since we are in a rate cut cycle already, will we pass on this benefit on the cost of fund side to the end customer? And also because as you also alluded that the competition has increased. So in all, are we looking to look at -- have some rate cuts going ahead?

Yes. It is always -- we try to always maintain our spread and our yield -- spread and our yields. So our spread is about 9.5%. We try to maintain that always. And if going forward, our cost of fund is coming -- cost of borrowing is coming down, we certainly will pass it on to customers because we have been doing that all the way. So if there is a rate cut or cost of borrowing is coming down, we will pass it on to our customers.

Got it. Sir, one last question was on the NPA front, which has benefited us on the interest income side as well. So what really helped us to bring down this NPA by almost INR 700 crores on a Q-on-Q basis, like what efforts or what measures have we taken that led to such a sharp reduction?

It is not that we engage people to go and collect our money, et cetera. It is people coming forward. They wanted their gold back, they came forward. We gave them time to clear the loan. So what -- what was our NPA was just because we had given these customers time to redeem their gold instead of auctioning it. So in quick time -- some time, they came back, they took back their gold. So because of that, they were able to save the gold. That is what we see in this. It is not that we don't need to do any recovery measures, etcetera.

We take the next question from the line of Kushagra Goel from CLSA.

Congratulations on a good set of numbers. Most of my questions are already answered. Just one question. So your OpEx was also better this quarter. So can you give us some guidance on this, how you are looking at it going forward?

See, OpEx, yes, we are better because the AUM is going up. Per branch business is also going up. Per branch business, which is much lower earlier, today is more than INR 25 crores. So as the per branch business goes up, proportionately a part of the OpEx also will come down. Of course, there is inflation and other things to consider. But if any company wants to reduce the OpEx, they have to increase the per branch business. So if this time, the OpEx has come down, it is because we had an INR 10,000 crore growth in the AUM.

Right. Okay. So any particular guidance on this front or...

The OpEx here, it will be almost stable, almost stable. In absolute terms, it will go up only by the rate of inflation. It will only go up by the rate of inflation.

We take the next question from the line of Mayank from Trust Mutual Fund.

So you indicated that there were a good amount of repayments from the customers who are NPA or who are not able to repay. Can you give some color on the geographies where you are seeing the higher repayments, any specific customer segment, ticket sizes or industry? Basically, I'm trying to understand is the rural segment is picking up, they are saying you are seeing good opportunities in the [indiscernible] industry -- what I -- sorry, rural customer is picking up or what is leading to the higher repayments?

No, I don't think we have any debt on the -- it is a general feeling. We don't have granular data.

So Mayank, we are too scattered across various geographies, and there is not much of a pattern which is emerging. In every geography, there is an NPA and you can't attribute any particular reason for that. And don't give too much importance for this NPA going up or NPA coming reduction. What you need to focus, I should have mentioned this in the earlier response. See, though in gold loan business, you categorize loans as NPA and you reverse the interest accrual on those loans, you make an ECL provisions. The important thing is that later, it will come back. Interest -- the accrued income will come back and also the ECL provisions will get reversed. That is the importance you need to attach to NPAs in our gold loan book.

We take the next question from the line of Kushan Parikh from Morgan Stanley.

Just had a few data-keeping questions and a couple of queries as well. So just on the borrowing costs, we saw 11 basis points Q-o-Q benefit in 1Q. What would our incremental borrowing cost be now? And if you could also share the external benchmark linked rate borrowings? Just trying to understand how much benefit we can get on the borrowing cost in coming quarters. And secondly, also on the ARC sale, we accrued about INR 100 crores interest in 1Q. Is there more benefit in terms of interest accrual in coming quarters that we expect, if you could quantify that? Lastly, just a few data keeping questions. If you could share the AUM by ticket size as you usually do on the call and also the auction numbers for 1Q? Yes. That's from my side.

Okay. So borrowing cost, I think there's -- as you said, there's 11 bps decline. So most of our loans are linked to the MCLR. As and when the MCLR comes down of the banks, it will come down. And we are expecting that to happen in next 3 to 6 months. We don't have anything linked to EBLR. So far, we have not got that privilege. But on the NCD market, we have been able to bring down our rates. Recently, we have done 2.5 year at around 7.85% -- so borrowing cost is coming down.

And as a practice, when the borrowing cost really comes down, we always maintain our spread of 9.5%. And if there is -- the borrowing cost is coming down considerably, we pass it on to our customers. The second part is about the ARC. This quarter, we have received about INR 100 crores in the -- from the ARC. Probably another INR 100 crores, INR 150 crores is yet to receive in the coming quarters. So what -- the principal has been fully been realized. So another INR 100 crores to INR 150 crores may come in the coming quarters. Was there one more question?

Ticket-wise above INR 3 lakhs, as I said, it is 40%; between INR 1 lakh to 3 lakh, it's 34%; and on less than INR 1 lakh, it is 26%.

Understood, sir. Just the last question on the auction for the quarter.

Auction is roughly around INR 13 crores, INR 14 crores.

It's about INR 13 crores only.

We take the next question from the line of Harshit from Premji.

Am I audible?