Muthoot Capital Services Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Clean-up year delivers 57% PAT growth: PAT hit ₹122 crore as GNPA halved via an ARC sale and hard recoveries, while ROA jumped 71% to 6.35%. The quarter itself was soft on disbursements due to a deliberate system overhaul.
• Blended yield compressed, but the floor is in sight: Co-lending’s full-year drag took blended yield to 17.52%, down 2–2.5 pp. Management expects a recovery to ~20% in FY25 as the higher-yielding own-book business scales back up.
• A new product engine is being built: The company launched or is launching used cars, commercial vehicles, EVs, personal loans and fixed deposits, aiming to shift the mix beyond two-wheelers while keeping two-wheelers at 60–65% of AUM.
• The LOS disruption was a self-inflicted reset: A new loan origination system, implemented in December, took 1.5–2 months to stabilize and caused the Q4 disbursement miss. Management calls it a conscious investment for future scale.
• What to watch next quarter: Whether the Q1 FY25 disbursement target of ₹400 crore (100% YoY growth) is met, the pace of blended yield recovery toward 20%, and any firm decision on a second ARC transaction.

Portfolio Clean-up & Asset Quality

• GNPA halved through two channels: An ARC sale of ₹235 crore in Q2 and ₹70 crore of hardcore recoveries during the year cut the gross NPA stock by 54%. The company maintains a 75% PCR, leaving NNPA at 3.40%.
• Early-stage stress contained: Early-stage NPA was brought down by 68% to just 0.49% by tightening control at the point cases first become GNPA.
• Collections efficiency improved: NACH recoveries rose from 48% to 56% over the financial year, which helped reduce the cost of recovery from 5% to approximately 4%.
• Portfolio built on traceable customers: 98% of the portfolio built last year consists of customers who own their house, a structural advantage for collections. Hero and Honda OEMs contribute 70% of the portfolio, TVS another 14%, and near-prime or slightly-below-prime customers are only 11% of the book.
• Pre-COVID tail still unresolved: A pre-COVID portfolio of ₹143 crore in NACH with a ₹61 crore overlay remains on the books; a call on its treatment will be taken during portfolio analysis.

Markose: "A very comforting factor on our portfolio distribution is that 98% of the portfolio that we built last year, our customers who have their own house. So, that's a huge comfort in the two-wheeler segment."

Disbursement Trajectory & the LOS Reset

• Q4 disbursement missed guidance: Disbursements came in below ₹400 crore against a ₹600 crore target because a new Loan Origination System implemented in December took 1.5–2 months to stabilize. The new system cuts approval time to 5 minutes and disbursement to 30–45 minutes, down from 24 hours.
• Q3 was also a miss, for a related reason: The LOS implementation was postponed to avoid disrupting the November festive season, which caused the Q3 guidance miss.
• Own-book business is scaling back up: MCSL’s own monthly disbursement grew from ~₹40 crore to ~₹85 crore per month, a trajectory management expects will lift blended yield going forward.
• Q1 FY25 target set at ₹400 crore: This represents 100% growth over Q1 last year and is the first test of the new LOS-enabled throughput.
• First-half ambition: Management plans to cover the entire last year’s MCSL-alone business figure by September; as of May 24, it was at 25% of that total.

Markose: "That was a conscious call because that was at some stage we had to do it, and that was of course an investment for the future."

Yield Dynamics & Co-lending Strategy

• Blended yield fell to 17.52%: Co-lending, which carries a ~15% yield, had a full-year impact versus only 3–4 months in the prior year, dragging overall yield down by 2%–2.5%. The offset is zero NPA in the co-lending book, saving OPEX and ECL costs.
• Recovery to ~20% expected in FY25: Management expects the blended yield, including processing fees, to reach ~20% from Q1 itself as the higher-yielding own-book share rises.
• Tier-3/Tier-4 cities support pricing: 68% of the own portfolio sits in Tier-3 and Tier-4 locations where lending rates are upwards of 23%, providing a structural yield advantage.
• Co-lending share is growing but not dominant: Co-lending increased from 22% in Q3 to 32% in Q4, with five co-lending partners and one BC partner contributing ₹600 crore. Management is explicit that it will not become solely dependent on co-lending because own-book yields are materially higher.
• Borrowing cost held steady: Despite a 0.12 percentage-point increase in average MCLR, the impact on funding cost was only 0.08%, with average cost of funding at 9.80%. Improved financials in March ’24 versus March ’23 helped in negotiating better rates with bankers.

Markose: "We don't want to be an organization which is only dependent on co-lending. So, we want to continue our business because yields are fairly larger."

New Products & Diversification

• Six-product strategy now in motion: Beyond the core two-wheeler business, the company has launched used cars, commercial vehicles, EVs, a loyalty-linked personal loan, and retail liabilities (fixed deposits). Two-wheelers will remain 60–65% of AUM.
• Used cars and LCVs are the near-term AUM drivers: These products carry larger ticket sizes (₹5 lakh average) and longer tenors (48 months), so runoff is much lower than two-wheelers, meaning disbursements contribute more directly to AUM growth. Each is expected to source ~₹150–₹160 crore in FY25.
• EV is small but growing: EV is currently 1% of the book; a tie-up with Greaves Evfin contributes ~₹20 crore per month, and electric three-wheeler financing is starting with co-lending partners. Management expects EV to reach 4%–5% of the book.
• Personal loan launch imminent: Disbursement will most likely start in Q1, focused on the existing customer base with a proven 12-month track record, with the underlying asset remaining as security. Full-year disbursement is pegged at ~₹100 crore.
• Fixed deposit team hired: A fresh team was brought on board in Q4 to build out the retail liability franchise, with results expected this financial year.

Operating Levers & Cost Management

• OPEX growth guided at 6%–8% for FY25: Management expects the same percentage to hold for FY26, implying disciplined cost growth even as new products scale.
• Data analytics investments are operational: A business intelligence and strategy team is in place, with scorecards now driving collection allocation (pre-delinquency and post-delinquency) and origination decisions.
• Risk-based pricing on the roadmap: The company plans to move to risk-based pricing during the year, charging lower rates to better-profile customers and higher rates to higher-risk customers, using the new scorecard infrastructure.
• ECL on new products expected to be low: Used car and LCV portfolios are expected to carry an ECL of 0.6%–0.75%, reflecting the secured nature and customer selection.
• Regional concentration reduced: South India exposure dropped from 58% in FY23 to 44% as the company expanded pan-India, reducing geographic risk.

Guidance & Commitments

Gill: "I am not afraid and I am making this statement because of this because now I also feel that there is a need for the investors to have good ROA and ROE."

Key Metrics