Muthoot Capital Services Limited: Navigating Strategic Shifts and Tech-Driven Growth in Q3 FY26

Muthoot Capital Services Limited, a prominent player in India's automobile finance sector, has reported a quarter of strategic recalibration and tech-driven initiatives for Q3 FY26. The company, known for its focus on retail loans, delivered a mixed financial performance while actively pursuing a shift towards self-sourced business and portfolio diversification. For the quarter ended December 31, 2025, Muthoot Capital reported a Profit After Tax (PAT) of INR8.43 crore, a significant improvement from the previous quarter's INR3.31 crore. Asset Under Management (AUM) grew by 20% year-on-year to INR3,399 crore, with total disbursements for the quarter at INR625.86 crore.

The quarter saw a conscious strategic shift away from co-lending and Business Correspondent (BC) partnerships towards strengthening the company's own book. This pivot, aimed at enhancing capital effectiveness and improving yields, resulted in a substantial 42% year-on-year growth in the MCSL-owned portfolio, reaching INR2,712 crore. Conversely, the co-lending portfolio experienced a degrowth of 26% year-on-year, settling at INR685 crore. This re-prioritization reflects management's intent to focus on higher-yielding, self-originated assets. Product-wise, the company continues to see robust growth in its newer segments; 4-wheeler loans grew 84% year-on-year, Commercial Vehicle (CV) loans surged by an impressive 476%, and Loyalty loans increased by 149%. Two-wheeler loans, the core product, also saw a 15% year-on-year growth.

Enhancing Operational Efficiency Through Technology

Muthoot Capital has made significant investments in technology, particularly in its collection processes. The company introduced a new collection app, MCollect, for its sales team and implemented an AI/ML-based strategy builder to predict the most effective collection approach for each customer. Furthermore, the adoption of Agentic AI-based telecalling has drastically improved call volumes and reduced operational costs, enabling the team to reach customers in a day instead of a month. These initiatives are expected to drive better collection efficiency and contribute to reduced slippages in the coming quarters.

Asset Quality Management and Diversification

Asset quality remained a key focus. While the impairment expense for the first nine months of FY26 increased to INR54.59 crore, impacting profitability, the management has taken steps to address this. They revamped their Expected Credit Loss (ECL) model with external consultants and consciously reduced the Provision Coverage Ratio (PCR) from 60% to 50% based on improved slippage trends. The company also wrote off INR14.09 crore from older non-performing asset pools. Gross NPA stood at 6.45%, and Net NPA at 3.64% for Q3 FY26. The company's efforts to diversify its product portfolio are also noteworthy, with the recent launch of construction equipment finance and the upcoming introduction of used two-wheeler loans. These higher-ticket products are expected to contribute significantly to future AUM growth and provide a more balanced portfolio.

Funding and Liquidity Strength

Muthoot Capital's funding profile remains robust. The company successfully closed a green bond issuance of INR300 crore, with contributions from Axis Bank and GuarantCo. This demonstrates diversified funding sources and access to long-term capital. Total borrowings stood at INR3,198.25 crore, with a debt-to-equity ratio of 4.81x and a Capital Adequacy Ratio (CRAR) of 22.49%. The company's liquidity position is strong, with no cumulative mismatch and a Liquidity Coverage Ratio (LCR) consistently above the RBI's 100% requirement. CRISIL also upgraded the company's rating to A+ with a positive outlook, reflecting enhanced financial stability and improved risk perception.

Outlook and Strategic Vision

Looking ahead, Muthoot Capital is optimistic about its growth trajectory. The management reiterated its strategic objective to achieve an AUM of INR10,000 crore by 2028. For the current fiscal year, AUM is expected to close closer to INR4,000 crore, with total disbursements around INR2,500 crore. For FY27, the company projects incremental disbursements of approximately INR4,000 crore, with a strong focus on scaling up its 4-wheeler and CV segments to achieve over INR1,000 crore in disbursements for these products alone. The company also aims to cross INR100 crore in its retail Fixed Deposit book by March 2026. These targets underscore the management's confidence in its strategic shifts and tech-driven operational improvements to deliver sustained growth and profitability.