In a quarter defined by scale, discipline and regulatory tailwinds, Muthoot Finance delivered one of its strongest operating performances in recent memory. Q3FY26 was marked by a sharp acceleration in gold loan growth, robust operating leverage and visibly improving asset quality. Standalone AUM surged 51% year-on-year, profitability expanded materially, and return ratios strengthened meaningfully. With conservative loan-to-value ratios providing downside protection and RBI’s branch expansion relaxation offering structural growth flexibility, the franchise appears positioned for sustained compounding. IDBI Capital now values the stock at 3.4x FY28E book value, reflecting renewed confidence in earnings durability and franchise strength.

Gold Loan Engine Firing at Full Throttle

AUM expansion remained decisively gold-led. Standalone AUM rose to Rs14,75,520 mn in Q3FY26, marking a 51% YoY increase and 11.5% sequential growth. This acceleration was broad-based across salaried, self-employed and small trader segments, underscoring structural liquidity demand rather than speculative borrowing.

Importantly, management clarified that demand is driven more by short-term liquidity requirements than gold price movements. Average ticket size per loan improved sequentially, supported by higher gold prices and improved branch productivity.

Growth remains calibrated. Despite regulatory relaxation permitting branch expansion without prior approval, management signaled no aggressive rollout. Capacity addition will remain demand-driven—an approach that protects margins and asset quality.

Margins: Elevated but Sustainable

Q3FY26 Net Interest Income surged 64% YoY to Rs44,671 mn, with NIM expanding to 12.77%. While part of the margin expansion was aided by recovery-led income recognition, management guided steady-state yields at 18.5–19.0%.

Loan-to-Value discipline remains the anchor. Average LTV at ~57% provides meaningful buffer against gold price volatility. This conservative underwriting framework ensures collateral cover even under stress scenarios.

Cost of funds has inched up marginally due to gradual MCLR transmission, but spreads remain healthy near 9.9% for FY26E. The company continues to prioritize spread preservation over aggressive pricing.

Asset Quality: Structural Strength Emerging

The most striking improvement has been in credit metrics.

The short-tenure nature of gold loans allows rapid portfolio churn and quicker recovery cycles. Q3 credit cost stood at just 0.3%, sharply lower YoY.

No emerging stress was flagged by management. The secured lending cycle currently benefits from pressure in unsecured segments, pushing borrowers toward collateral-backed credit.

Profitability: Operating Leverage in Action

Standalone PAT for Q3FY26 nearly doubled YoY to Rs26,564 mn. For 9MFY26, net profit growth stood at 91% YoY.

Operating metrics show clear scalability:

ROE is projected to peak near 29.5% in FY26E before normalizing toward mid-20s levels, reflecting a high-quality earnings profile.

Balance Sheet: Built for Scale

The balance sheet expanded meaningfully, with borrowings rising to Rs12,73,943 mn in Q3FY26. The borrowing mix remains diversified:

Secured NCDs: 29.5%

Bank/FI Borrowings: 48.9%

ECBs: 15.2%

Commercial Paper: 5.4%

Capital adequacy remains comfortable at 19.9% for FY26E, providing adequate headroom for continued growth.

Earnings Visibility Through FY28

IDBI Capital’s projections suggest sustained earnings compounding:

EPS growth of 82% in FY26E marks a breakout year, followed by steady mid-teen compounding.

Valuation & Investment View

At Rs4,066, the stock trades at:

17.2x FY26E EPS

4.5x FY26E P/BV

12.6x FY28E EPS

IDBI Capital values the company at 3.4x FY28E book, deriving a target of Rs4,750.

Risk-reward has turned favorable again. Regulatory easing, secured credit cycle preference and operating leverage create a supportive backdrop.

Technical Levels for Investors

Immediate Support: Rs3,850

Strong Accumulation Zone: Rs3,700–3,800

Immediate Resistance: Rs4,150 (near 52-week high)

Breakout Level: Sustained close above Rs4,200

Target: Rs4,750

Medium-term extension (12–18 months): Rs5,100–5,250 if earnings upgrades continue

Momentum remains positive given recent outperformance versus Sensex.

Final Word

Muthoot Finance stands at the intersection of favorable regulation, secured credit preference and disciplined underwriting. Conservative LTV ratios shield the balance sheet, while improving operating metrics amplify profitability. With ROE approaching 30% and earnings visibility through FY28 strengthening, the franchise appears well positioned for sustained compounding.

IDBI Capital’s upgrade to BUY reflects not just quarterly strength, but structural resilience. For long-term investors seeking exposure to secured retail credit, Muthoot Finance merits serious consideration.