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

Ladies and gentlemen, good day, and welcome to Muthoot Finance Limited Q2 FY '26 Earnings Conference Call hosted by Elara Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities. Thank you, and over to you, ma'am.

Thank you, Shilpa. Good evening, everyone. On behalf of Elara Securities, we welcome you all to Q2 FY '26 Earnings Conference Call of Muthoot Finance Limited. From the esteemed management, we have with us today Mr. George Alexander Muthoot, Managing Director; Mr. Alexander George, Whole-Time Director; Mr. George Alexander, Whole-time Director; Mr. George M. George, Whole-Time Director; Mr. George Muthoot 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.

Good evening to all of you. This is George Alexander Muthoot, Managing Director. We have the members of the Board also with me because today afternoon we had our Board meeting for reviewing the Q2 performance of the company. And I'm glad to say that Muthoot Finance consolidated loan assets under management grew 42% year-on-year to INR 1,47,673 crores. And as against INR 1,04,149 crores in the corresponding half year of last year. During the half year, consolidated loan assets under management grew by INR 25,000 crores, a growth of 21%. Consolidated profit after tax stood at INR 4,386 crores as against INR 2,517 crores last year, an increase of 74% year-on-year. Muthoot Finance -- the portfolio in Muthoot Finance per se, the standalone profit of Muthoot Finance stood at INR 4,391 crores, in the half year as against INR 2,330 crores in the last half year, an increase of 88%. The profit after tax for the Q2 financial year stood at INR 2,345 crores as against INR 1,251 crores in the Q2 of the last year, an increase of 87% year-on-year. Loan assets under management stood at INR 1,32,305 crores this half year, as compared to INR 90,197 crores in the preceding half year of last year, again registering a growth of 47% year-on-year. During this quarter -- during quarter 2 financial year '26, gold loan AUM increased by INR 11,723 crores, registering a growth of 10%. Now coming to the subsidiaries, Muthoot Home Finance, the AUM stood at INR 3,247 crores a total revenue for the half year stood at INR 222 crores as against INR 155 crores in the last year, a growth of 44%. Profit after tax stood at INR 10 crores. Stage III loan assets stood at 1.69% as of September 30, 2025. Belstar Microfinance is a subsidiary again of Muthoot Finance, where Muthoot Finance hold 66% stake. Loan AUM for the half year stood at INR 7,717 crores, and the total revenue stood at INR 840 crores. It incurred a loss of INR 160 crores during the half year which is consistent with the adverse environment generally in the microfinance sector. However, the losses have narrowed down from INR 128 crores in Q1 to INR 32 crores in the Q2. Stage III loans stood at INR 4.58 crores, which is also consistent with industry peers. Consequent to the RBI allowing microfinance companies to have 40% non-microfinance loan portfolio. Belstar has opened 23 gold loan branches in the half year to diversify the loan product portfolio. . Muthoot insurance brokers an IRDAI registered company has a revenue of INR 70 crores, and it has achieved a profit after tax of INR 23 crores in this half year. Asia Asset Finance, a listed subsidiary based in Sri Lanka where Muthoot Finance hold 72.9% of the stake. The loan portfolio stood at [indiscernible] Sri Lankan INR 3,868 crores as against [indiscernible] Sri Lankan INR 2,600 crores in the last half year, again, an increase of 48% year-on-year. The total revenue also stood at INR 440 crores, an increase of 40%. And the profit after tax of Sri Lankan INR 40 crores as against a profit of INR 30 crores last year. Muthoot Money Limited, a wholly-owned subsidiary of Muthoot Finance is an RBI registered non-banking finance company Today, it's [indiscernible] loan against vehicle finance, has also loan against gold loans. The loan portfolio for the half year stood at INR 6,393 as against INR 2,491 crores, an increase of 63%. The total revenue increased to INR 501 crores as against INR 146 crores in the half year, an increase of 244% year-on-year. Again, it achieved a profit after tax of INR 106 crores in this half year, compared to INR 5 crores in the previous year. We are delighted to report another strong quarter with standalone loan assets under management pricing to INR 1,22,000 crores. The steady trajectory highlights the resilience of our business model and the continued trust of our customers. Standalone profit after tax also increased 88% year-on-year to INR 4,391 crores for this half year. In view of this performance, we are upgrading our financial '26 gold loan growth guidance from 50% to 30% to 35% -- 30%. 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 . We will continue to expand our non-gold loan portfolio also, including personal loan, which today and -- including microfinance. This non-gold loan portfolio is about 12% to 15% of the consolidated loan book portfolio. The microfinance sector showed renewed resilience following the implementation of regulatory guardrails and improved underwriting, auguring well for future performance. We are accelerating our digital transformation to deliver faster, more seamless credit access for millions of customers worldwide. With an enhanced branch network, a trusted brand and sustained investment in technology and innovation, Muthoot Finance is well positioned to deliver sustained growth throughout the financial year '26 and beyond. I think with this, I would like to conclude my short address. And I would like -- I would be delighted to give clarifications against any -- from any of the investors. Thank you.

[Operator Instructions] First question is from the line of Mahrukh from Nuvama.

Yes, Mahrukh, we are not able to hear you.

As there is no response from Mahrukh, we will proceed with the next question from Mr. Raghav from Ambit Capital.

Congrats on these results. I just have one question. I wanted some understanding on your yield. So it has moved up again in this quarter versus Q1. Last quarter, I remember, you had some INR 350 crores to INR 400 crores of recovery benefit. What is that recovery benefit in this quarter that is leading to a yield expansion again quarter-on-quarter? Is it somewhere around INR 550 crores to INR 600 crores in this quarter? Is that estimate right? Just wanted some thoughts on this. And then I have another question.

So I think the reason why it has increased a bit is probably -- in the NPA bucket, there has been a liquidation of some old dues, especially in the light of increased gold price. So there, we have been able to generate a better yield, which should somewhere around INR 300 crores plus. So that should add to the additional yield interest income, which has been generated. As you know, on NPA accounts, we do not recognize the interest. So that has come in as an additional yield. Rest is probably because of the churn in the book.

Okay. And you also -- I think last quarter, you had mentioned there was some INR 150 crores that you were to receive from the ARC sale. Has that come in this quarter?

No. So the collections from remaining portion of ARCs this quarter, it is small, very small.

Okay. Understood. So you're saying the entire yield expansion, which is from 19.56% to 19.99%, that's entirely because of this INR 300 crores. Is that understanding right?

Yes.

Because the math doesn't seem to be adding up -- the math doesn't seem to add up only about INR 300 crores because I think last quarter, when you had this INR 350 crores, INR 400 crores adjusted for that, the core yield was somewhere around 18%, 18.5%. And hence, the question that if this benefit is only restricted to INR 300 crores or is it more?

Yes. So around -- roughly around INR 300 crores. And the yield should be somewhere between 18.5% to 18.75%, somewhere around that range.

Next question is from Piran from CLSA.

Team Muthoot many congratulations on the strong quarter. Just going back to Raghav's question on the yield movement. So if I reduce INR 300 crores, INR 350 crores from last quarter and this quarter's interest income, that interest income has still grown 14% versus loan growth of 10%. So are our fresh disbursement yields going up in the last few months?

Interest income is going up because the portfolio also has gone up.

Portfolio is up 10%. Interest income is up 14%, 1-4, if I adjust for the INR 300 crores.

Okay. So the profit -- the loan portfolio, so we have a bouquet of products for yield, et cetera. So high yield, low yield. It occasionally -- it sometimes happens that in some quarters, the higher yield portfolio outtake may be higher. But simple math. It's just not that such a lot of retail loans. Some of it happens like that. So it only means that during the quarter or just before the last quarter, more high-yielding loans would have been disbursed. That's it.

Okay. So we should not read too much into it. It sounds like that.

Yes. That's what I think -- what's what Oommen was also trying to say.

Okay. Okay. Now I understood. Sir, and also in your opening remarks, you mentioned about favorable regulatory tailwinds. I think you're referring to the LTV, you can give at a higher LTV for lower ticket loans. Have you started doing that? For loans less than INR 2.5 lakhs?

What I went by regulatory tailwinds is mainly the clarification -- what's the clarifications and what should I say, confusions being set at rest by the RBI. I think that is what I went by the regulatory tailwinds. Of course, we have not started the new -- what should I say, less than INR 2.5 lakh loans and 85%, et cetera, we have not started, sir.

But we intend to start before April 1st? Or you just wait for the market to do and then we follow?

We'll take some decisions. I think usually, we do and others follow.

Okay. Fair enough. And sir, just lastly on cost of funds, how much more benefit can we expect to see over the next 2, 3 quarters?

I think no, it has -- cost of funds -- no cost of borrowings have started declining. I think last quarter, it was 8.99% this quarter, I think it is 8.78%.

Yes.

Last time, 8.88%, now it is 8.78%. So I think it should come down. I think banks MCLR also started declining, so we should see that. Domestic NCD market also, the rates have started falling. So I think we should see the -- I think the peak level of interest has already reached and I think it started declining. So we should get a benefit in the coming quarters.

So like, sir, 30, 40 bps sound reasonable? Like 8.78% becoming...

Yes, probably by the end of the year? Not end of the year, it's another 2 quarters. We should see some decline. I'm not -- maybe another 15, 20 basis point decline should happen from the first quarter of next year.

Next question is from Mahrukh from Nuvama.

Congratulations. I have 2 questions. One is on yield. So your -- do you have any plans to cut your yields given that competition is at very varying levels of yield, right? There are these gold -- there are gold finance companies such as [indiscernible], which are at 18% to 20%. And then there are SFBs and other NBFCs at around 15% and then banks are lending at lower, maybe they're all different segments. Are there competitive pressures enough to suggest a yield drop or it will just take the -- it will just track the interest rate cuts?

So Mahrukh, see our lowest interest rate will be around 10 percentage. Our highest rate will be around 21 percentage. We keep tweaking with these schemes depending upon how the business scenario is. So that's why sometimes the rates go up, sometimes rates come up. But we generally try to remain somewhere around 18.5% kind of a level because we try to get into different segments, depending upon how the market is. So to answer your questions, we have a low rate products. We have not done any across-the-board reduction in interest rates.

And competition from all the banks and NBFCs, which you mentioned, they are there for the last several years. So there's nothing new, nothing new. Banks are there. SFBs are there, NBFCs are there, nothing new. So we try to give the best for the customer and probably see that we grow our portfolio also side-by-side. If you have to -- if the rate is too high, et cetera, people may not come. If it is too low or yield may come down. So we do a balance.

Next question is from Abhijit from Motilal Oswal.

Sir, while you have already answered, right, that competitive intensity has remained for the last many years and despite that we've done so well. I'm just trying to understand especially in Southern India, right, where you kind of keep hearing that there are other NBFCs, right, who have entered into gold loans and who have poached employees from Muthoot, right? So I'm just trying to understand despite so many NBFCs now announcing their foray into gold loan and now starting to build teams in gold loans, it still is not really prompting you to rethink your strategy in anyway right?

So thank you. I think there is competition always. This is not the first time. Others are also planning to enter. Because again, I remember in 2011, '12, there was again, a rush of all NBFCs and non NBFCs also wanting to enter the gold loan sector. After sometime -- after a year or 2, most of them lost interest. So this is -- at this point of time, there are people coming in. But focused players, people who are focused, we were also focused at that time. We are focused today also. We are focused on gold loans. I think there is always space for us and we did not take any knee-jerk reactions when such things, some people come. No need for any knee-jerk reactions. We are there. We have branches. We have our customers and those customers definitely value the service and the products which we give. I think to answer your point, don't need to take any knee-jerk reactions to some people saying that we are -- and people poaching from Muthoot always has been there. But anyway, people think that by poaching a few managers or some senior managers from Muthoot, they can start a gold loan, but they will start, but afterwards, they'll find it -- the operations, the challenges in the operations will catch up with them. So we'll wait and see. So one point, one word, there's no need to take any hasty or knee-jerk reactions. People will come and go, but we have been there focused on this.

Got it, sir. And sir, there has been a related question again on the same thing that even despite so many other large NBFCs entering into gold loans, no one at this point in time introducing any teaser rate schemes, right, just to kind of entice customers, right? So I mean, given how yields have been, right, what I'm trying to understand is the pricing discipline in gold loans is still very much there, right? Everyone is able to grow without really having to do too much on yields and pricing.

I think you put the question, you answered it also. So I think I should agree with that only.

All right, sir. And then the last question, again, I had is, sir, I mean, while you explained that there were some one-offs in interest income in the first quarter, second quarter, right, and which is why maybe the yields are higher. But from a second half perspective, if you could help us understand what are the recoveries which are expected, either from NPA resolutions or from the ARC transaction that we have in the first quarter called out that maybe another INR 100 crores, INR 150 crores we are expecting. So what are the recoveries which are expected, which will reflect in interest income in the second half? And then what are the blended steady-state yields we should expect going forward?

I think yield is what Oommen also mentioned, 18.5% -- 18.5% that is the rate which we would plus or minus 0.5% is what we would be expecting, maybe 18%, 18.5%. That should be the steady state. Occasionally, some of these comes because as Oommen said, when there's a churn in the NPA, the older loan NPAs with a lot of interest embedded in them gets replaced by a new NPA with much lesser interest. So all the interest which we had actually derecognized will become recognized. So when this churn happens, some of these things happen. So our NPA as of this quarter is, I think a little less than INR 3,000 crores. And I think it has continued to be there. That is because we give more time to the customers to take the loan. That is the NPA. Regarding the ARC, yes, some of it, people have come and taken back their gold. And now the gold price is also high. So probably more and more people will come and take back their gold. In fact, in the ARC also, all the customers who are able to take back the gold are very, very happy because we did not auction their gold. So again, there are some little ARCs left, and we are definitely in the money. So we are not hard pressed to auction in Q3. And as and when they come, they'll be able to take it back. So answering the question, the yield should be in the 18%, 18.5% range going forward also. This, of course, occasionally, this churn in the NPA, et cetera happens and some extra interest come in.

Got it. And sir Oommen sir, if you could just answer that question, what are the expected recoveries in the second half?

Expect recoveries means what -- there's no particular customer who we should -- it's just such a lot of small loan portfolios. So it is just the people coming and taking back their gold. There is no one big customer or some big loans which have to be recovered. There's nothing like that in this. In the gold loan, it's all average INR 1,50,000 and INR 1 lakh loans. They come, they close and they go. That's all.

Next question is from Love Sharma from JPMorgan.

Three questions from me, if you can help me with those. So first one, I think on the ECB side, on the dollar-bond borrowings. Of course, they have grown to quite decent portion of the overall funding, about 15% now. If you could just share some insight to where you think your target or any steady-state number you have in mind as a percentage of your funding for the ECB borrowings. Second question would be around the new RBI guidelines. If you can share what has been the changes since they have been implemented in October. And I believe some of those measures would likely be implemented from April onwards. But just to get a sense of what you expect in terms of changes, in terms of growth, competitive scenario or anything else which you could highlight? And just lastly, I think you made some announcement around this particular case about some retail investors having some complaints or some issues. If you could just share where that is or what is the -- any quantifiable impact you could see there, if at all? That's it from me.

ECB borrowings is around 16%. I believe we should have stable source of funding if it is a stable source of funding, it should constitute around 25, 30 percentage. But now on ECB borrowings, now we have focused only so far on bonds. There is also a larger ECB loan market, which probably we'll be keen to look at it.

Regulatory changes. Regulatory, actually, it's all clarifications. There's not much changes happening. And we have not started implementing the new regulations, which is coming -- kicking in only from 1st of April next year. So I think there's nothing now to be done on that. So we have not made any changes. There is no big changes necessary from this regulatory guidelines. The only thing which is there is the new loans, which we are permitted to grow loans up to INR 2,50,000 with 85% NCD, et cetera, that we will consider from next April. The board will have to take a decision or the credit departments had to take a decision on that.

The last point, I think we have already filed an exchange filing, which is quite detailed. So we don't have anything to add more than that.

Is it possible to give you any quantifiable amount? How much of the retail investors are -- what kind of losses they incurred, et cetera? And just from this perspective.

Love, please go through that exchange filing. This has nothing to do with Muthoot Finance or the loss incurred by the investors.

Next question is from Shreya from Nomura.

Congratulations on a great set of numbers. I have 2 questions. I wanted to understand our average ticket size is now more than INR 1,17,000. I wanted to understand at what point or at what ticket size will this start plateauing because obviously, at the higher end, your bank -- competition from banks will become aggressive at -- maybe beyond INR 2 lakhs or INR 2.5 lakhs or INR 1.5 lakh. If you can help us understand beyond what ticket size, do you feel for your book, you see far higher competition from the banks? My second question is on the number of customers. Obviously, there was a very strong growth in the number of customers and the site that you've given of customers coming back with fresh collateral, et cetera. But in this quarter, that number seems to have plateaued a little bit or declined in certain segments. It seems a little counterintuitive because we thought that a lot of customers who are not getting MSME loans, not getting MFI loans would still be coming to you all. Has there been some slowdown in the number of people walking into your branches? Those are my 2 questions.

Okay. Regarding the competition from banks on the average ticket size, et cetera, there is space and room for everybody today. As you said in the last line, more and more people are now thinking of gold loan. More and more people are now comfortable to take a gold loan with their jewelry. So we don't see competition that somebody is taking away our customers or we are taking bank customers or banking. There's space for everybody. The total business is really growing. Today, the banks have a huge gold loan portfolio. They have a portfolio about [indiscernible] trillion, and the NBFCs have a portfolio of little less than INR 3 trillion. So there is a lot of business being done by the bank. And people may go to bank, may come to NBFCs. It is not that -- my point is, it is not that somebody is taking our business, and we are taking somebody business. There is business for everybody. Now about this number of customers...

Shreya, this -- the number we are showing, it's actually the incremental number of new customers. So every quarter, if you are able to bring in 4 lakh plus new customers, that is a big thing. And what you are thinking is probably the outstanding number of new customers. It's not. Every quarter, we have added around 4.2 -- 4.2...

Ms. Shreya?

Sorry, I lost that. Understood. I get the part that it's addition of new customers and every quarter, it has been...

Sorry for interrupting you. The line for management has been dropped, please stay connected while we reconnect the management. I repeat the line for management has been disconnected, please stay connected while we reconnect. [ Technical Difficulty ] Ladies and gentlemen, thank you for waiting patiently. The management is back on line with us.

Yes. So answering Shreya's question on number of customers.

Are you there?

Yes, yes I'm there.

Every quarter, we are adding a new set of customers, which is around 4.2 lakhs. Sometimes there could be small variations. Sometimes it could be higher than previous quarters. But the important thing is that every quarter, we are adding a similar number of new customers. And we are making fresh disbursement to those customers.

Next question is from Sameer from Dymon Asia.

Sir, just to kind of harp on this point of competition, while I agree that Muthoot has been there across cycle and probably one of the most long-standing players. Just wanted to pick your brains on the fact that this time the new competition is AAA-rated, especially from the NBFC side, large NBFCs who are AAA rated want to scale this product, also see more invested in technology. So how are we trying to kind of stay at the forefront in the product as well as do you see any risk to say, pricing or yields. That's my question.

I have answered a similar question a little earlier also. There are people coming AAA or AA or whatever A rating, et cetera with a deep focus maybe coming into the business. But then we have been focused on this business. We are focused on gold loan. Our branches are also focused on gold loan. And we have seen similar people coming in probably after some time losing interest also. But whatever it is, we come to a sector when there is -- when they see a lot of growth potential. So it definitely answers one question. There is growth potential in the gold loan sector. Now whether somebody is coming and taking away our business that question, I don't think it has happened. It is happening. And until now, we have not seen anything like that. So we will see. We will wait and see what is happening in the market, and we can always make changes if necessary. But to me, if you ask me, I don't think we need to do anything -- any knee-jerk reaction today.

Next question is from Harshit from Premji Invest.

Sir, I had a few questions. First, I'll put it all together itself . One is on the LTV piece itself. So this time, I think we have consciously or probably because of the market factors, we have kept the LTVs much lower than what it was running till last quarter. It's right now about around 57% versus 62% to 61% we had earlier. So I wanted to get your thought that is it a conscious -- conscious, conscious decision from our end, given the heated prices right now? And the second question was, sir, on the branches that we saw a very good branch addition this quarter. If you can throw some light on the targets and what are the limits, which we have unused at this point of time. And one last question is that when I look at the Stage III reduction, last quarter, it was INR 700 crores. This year, it was around INR 100 crores. Despite that, our interest income recoveries this time seemed very strong. So just wanted to double check that the INR 350 crores odd number, which you said last quarter was regarding probably the INR 600 crore of Stage III reduction. But this time that number was only INR 100 crores, yet the number was very strong. So if you can give some color on where -- how should we look at the yields?