Muthoot Capital Services Limited Q1 FY27 Earnings Conference Call

Key Business and Financial Highlights

Management Participants: Mr. Mathews Markose (CEO) and Mr. Ramandeep Gill (CFO).

Operational Performance:

  • AUM: Stands at INR 3,300 crores (excluding ARC-sold portfolio).
  • Retail Portfolio: Grew to INR 2,851 crores from INR 2,300 crores YoY.
  • Co-lending Portfolio: Reduced significantly to INR 499 crores from ~INR 1,000 crores YoY; incremental co-lending business is zero.
  • Disbursements: Total Q1 disbursements were INR 564 crores. MCSL standalone disbursements were INR 535 crores, up from INR 508 crores in Q4 FY26.
  • Product-wise Growth: Construction Equipment portfolio grew 75% YoY; CV and used car grew 40% YoY; 2-wheeler was stable with a minor 1% degrowth.
  • Geographical Mix: South India contributes 40% of the portfolio; East, North, and West contribute the remainder.
  • Product Yields: Blended portfolio yield is healthy at ~21%. Used 2-wheeler yields are 26%; blended 2-wheeler yield is 22%; CV and CE yield is 17.5%; used car yield is 18.6%.
  • Customer Base: Loan customers stand at 577,834.

Asset Quality:

  • GNPA: Reduced to 3.94% from 5.81% YoY, a decline of 182 bps. Retail GNPA stands at 3.49%.
  • NNPA: Stood at 1.94%.
  • Provision Coverage Ratio (PCR): Remained stable at 50%.
  • Bucket-wise Analysis: 85% of the portfolio is in Bucket 0 (78% last year); 7.34% in Bucket 1; 2.76% in Bucket 2.
  • Segment-wise GNPA: CV & CE portfolio GNPA is 0.35%; used car is 1.31%; the remainder is from the 2-wheeler portfolio.
  • ARC Transaction: The company sold a stressed pool of INR 203 crores to an ARC (PARAS) at an average valuation of 45.61%. This was a one-time cleanup act for older assets (2-3+ years old). The transaction involved a write-off pool of INR 83.18 crores (already 100% provided for) and a GNPA pool of ~INR 120 crores. The deal resulted in a security receipt investment of INR 81 crores for the company.

Financial Performance:

  • Profitability: Reported a Profit After Tax (PAT) of INR 8 crores and Profit Before Tax (PBT) of INR 11 crores.
  • Total Income: Increased to INR 160 crores from INR 147 crores YoY, driven by higher yields from in-house sourcing.
  • Other Income: Insurance income (cross-sell) contributed INR 2.47 crores.
  • Shareholder Funds: Stood at INR 678 crores.
  • Balance Sheet Size: Grew by 1% from Q4 to INR 4,079 crores.
  • Capital Adequacy: CRAR is strong at 22.07%.
  • Gearing: Debt-to-equity stood at 4.88x.

Liability and Funding Profile:

  • Borrowings: Total borrowings were INR 3,318 crores.
  • Cost of Funds: Incremental borrowing cost in Q1 was 9%. The overall cost of funds has reduced by 80 bps YoY and 43 bps QoQ. A further reduction of 40-50 bps is expected due to the recent rating upgrade.
  • Fixed Deposits: The public deposit franchise crossed INR 100 crores, providing a stable, low-cost funding base.
  • Liquidity: The company maintains a liquidity coverage ratio (LCR) of 125-130% against an RBI requirement of 100%. Excess liquidity is invested in SLR instruments, PTCs, and bank FDs, yielding 6.71%.
  • Promoter Holding: Promoter shareholding stands at 63.33%.

Strategic Initiatives and Guidance:

  • Rating Upgrade: Received a CRISIL rating upgrade to AA- (Stable), validating the company's transformation and improving funding access.
  • Technology & AI: Heavy investment in AI-driven technology for collections (55% resolution in X-bucket via AI bots), welcome calls, audit, compliance, and complaint segregation.
  • Credit Underwriting: Shifting to an internally built, multi-bureau scorecard to improve credit acceptance ratios from the current 35-40%.
  • Growth Outlook: AUM projection for FY27 is INR 4,000-4,200 crores. The long-term target of INR 10,000 crores AUM by FY29 remains intact, with a strategic shift to diversify the portfolio (target: 30% 2-wheeler, 70% car, CV, CE, tractors).
  • ROA Target: A pre-tax ROA of 2.5% is targeted for FY27. The company is currently at ~1%.
  • Group Synergy: 15-20% of incremental sourcing comes from other Muthoot Pappachan Group entities (e.g., Muthoot FinCorp branches). The goal is to increase this to 40%.
  • Capital Raising: The company is comfortable with its current debt-to-equity of 4.88x (can go up to 6x) but is in discussions with investors for a potential equity raise. Data sharing has commenced with some investors.