The quarter's performance represents a remarkable acceleration in Muthoot Finance's growth trajectory, with net sales reaching ₹7,282.79 crores—up 47.76% from ₹4,928.82 crores in Q2 FY25 and 12.91% sequentially from Q1 FY26. This marks the seventh consecutive quarter of double-digit sequential growth, underscoring the company's ability to capitalise on robust demand for gold-backed loans amidst an environment of rising gold prices and expanding branch network.
The company's operating profit before depreciation, interest, and tax (excluding other income) stood at ₹5,803.23 crores in Q2 FY26, representing an impressive 79.68% operating margin—the highest in at least seven quarters. This margin expansion of 654 basis points year-on-year reflects superior pricing power, operational efficiency, and favourable shifts in the loan mix towards higher-yielding products.
Financial Performance: Exceptional Profitability Across Metrics
Muthoot Finance's Q2 FY26 results showcase exceptional strength across all profitability parameters. Net profit after tax jumped 90.36% year-on-year to ₹2,420.63 crores, whilst sequential growth of 20.06% from Q1 FY26's ₹2,016.20 crores demonstrates sustained momentum. The PAT margin expanded significantly to 33.11%—up from 26.81% in Q2 FY25 and 30.61% in Q1 FY26—reflecting both operational leverage and improved cost management.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | YoY Growth | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 7,282.79 | +12.91% | +47.76% | 2,420.63 | 33.11% |
| Jun'25 | 6,450.13 | +14.74% | +44.17% | 2,016.20 | 30.61% |
| Mar'25 | 5,621.75 | +8.32% | +35.01% | 1,477.68 | 25.68% |
| Dec'24 | 5,189.73 | +5.29% | — | 1,389.18 | 26.81% |
| Sep'24 | 4,928.82 | +10.17% | — | 1,271.60 | 26.81% |
| Jun'24 | 4,473.86 | +7.45% | — | 1,164.03 | 26.73% |
| Mar'24 | 4,163.80 | — | — | 1,139.07 | 28.39% |
The gross profit margin for Q2 FY26 reached 45.06%, up sharply from 37.06% in the year-ago quarter, indicating strong pricing discipline and favourable asset mix. Interest expenses rose to ₹2,571.22 crores from ₹1,807.03 crores year-on-year, reflecting the company's aggressive loan book expansion funded through increased borrowings. However, the interest coverage remains healthy, with operating profit comfortably covering interest costs by 2.26 times.
Employee costs increased 37.10% year-on-year to ₹726.92 crores, in line with branch network expansion and business growth. The cost-to-income ratio improved significantly, demonstrating operating leverage benefits as the company scales. Tax expenses stood at ₹832.54 crores in Q2 FY26, with an effective tax rate of 25.66%, marginally lower than the 26.67% recorded in Q2 FY25.
Operational Excellence: Industry-Leading Return Ratios
Muthoot Finance's operational performance in Q2 FY26 reinforces its position as one of India's most efficiently managed NBFCs. The company's return on equity (ROE) stands at an impressive 20.96% for the latest quarter, significantly above the industry average and reflecting superior capital efficiency. The five-year average ROE of 20.32% demonstrates consistency in generating strong returns for shareholders—a critical metric for evaluating financial services companies.
The company's return on capital employed (ROCE) of 13.55% indicates healthy profitability on total capital deployed, though it trails the ROE due to the leverage inherent in the NBFC business model. This gap between ROE and ROCE highlights the effective use of financial leverage to amplify shareholder returns whilst maintaining prudent risk management.
Capital Efficiency Strength
ROE of 20.96% positions Muthoot Finance amongst the top performers in the NBFC sector. Higher ROE indicates the company is generating superior returns on shareholder capital, a testament to strong asset quality, pricing power, and operational efficiency. The consistent 20%+ ROE over multiple quarters demonstrates sustainable competitive advantages in the gold loan segment.
The balance sheet expansion has been substantial, with total assets under management growing robustly. Shareholder funds increased to ₹29,366.63 crores as of March 2025 from ₹25,107.21 crores a year earlier, reflecting strong profit retention and capital accretion. The company maintains zero long-term debt on its books, with all borrowings classified under current liabilities—typical for NBFCs with shorter-duration gold loan portfolios.
Current liabilities surged to ₹1,04,368.64 crores in FY25 from ₹71,908.51 crores in FY24, primarily comprising borrowings to fund the expanding loan book. The debt-to-equity ratio stood at 3.76 times on a half-yearly basis for H1 FY26—the highest in recent periods—reflecting aggressive growth funding. Whilst elevated, this leverage remains manageable given the secured nature of gold loans and strong asset quality.
Leverage Monitoring Required
Debt-to-equity ratio of 3.76 times in H1 FY26 represents the highest leverage in recent quarters. Whilst common for NBFCs and supported by the secured gold loan portfolio, investors should monitor any further increases. The company's ability to maintain asset quality and profitability amidst this leverage will be critical for sustaining the current growth trajectory.
Gold Loan Dynamics: Riding the Precious Metal Rally
Muthoot Finance's exceptional performance in Q2 FY26 has been significantly aided by favourable gold price dynamics. The precious metal has witnessed a strong rally over the past year, with prices rising substantially in both domestic and international markets. This trend has dual benefits for gold loan NBFCs: higher collateral values enhance lending capacity per customer, whilst increased gold prices often drive more customers to monetise their jewellery holdings through loans.
The company's loan-to-value (LTV) ratios remain conservative, providing substantial cushion against potential gold price volatility. With loans typically disbursed at 75% of gold value, the current elevated gold prices offer enhanced protection to the lender. The secured nature of the portfolio, combined with the ability to liquidate collateral quickly if needed, positions Muthoot Finance favourably from a risk management perspective.
Branch Network Expansion
Muthoot Finance has been aggressively expanding its physical presence across India, particularly in tier-2 and tier-3 cities where formal credit penetration remains low. This distribution advantage, combined with brand recognition built over decades, creates a formidable moat against competition. The expanding branch network directly correlates with revenue growth, as evidenced by the sustained double-digit sequential expansion over seven quarters.
The company's focus on the unorganised segment—individuals who possess gold jewellery but lack access to formal credit—remains its core strength. These customers typically require short-term liquidity for personal or business needs and value the speed and simplicity of gold loans over traditional banking products. Muthoot Finance's ability to disburse loans within minutes at branch locations provides a significant competitive advantage in this segment.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 7,282.79 | 6,450.13 | 4,928.82 | +12.91% | +47.76% |
| Operating Profit (₹ Cr) | 5,803.23 | 5,008.80 | 3,605.09 | +15.86% | +60.98% |
| Interest Cost (₹ Cr) | 2,571.22 | 2,354.91 | 1,807.03 | +9.18% | +42.28% |
| Net Profit (₹ Cr) | 2,420.63 | 2,016.20 | 1,271.60 | +20.06% | +90.36% |
| Operating Margin (%) | 79.68% | 77.65% | 73.14% | +203 bps | +654 bps |
| PAT Margin (%) | 33.11% | 30.61% | 26.81% | +250 bps | +630 bps |
Industry Leadership: Commanding Market Position
Within the NBFC sector, Muthoot Finance occupies a unique position as the largest gold financing company in India by loan portfolio. This leadership position translates into significant operational advantages: superior brand recall, extensive distribution reach, better negotiating power with lenders, and economies of scale in operations. The company's market dominance in the gold loan segment provides pricing power and customer stickiness that smaller competitors struggle to replicate.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt/Equity | Dividend Yield (%) |
|---|---|---|---|---|---|
| Muthoot Finance | 22.14 | 4.64 | 20.32 | 3.38 | 0.77 |
| Bajaj Finance | 34.18 | 6.06 | 18.15 | 3.85 | 0.56 |
| Shriram Finance | 17.61 | 2.71 | 14.21 | 4.15 | 1.27 |
| Cholamandalam Inv | 31.11 | 5.57 | 17.68 | 7.23 | 0.12 |
| Jio Financial | 122.74 | 1.47 | 1.18 | 0.08 | 0.16 |
| Tata Capital | 37.52 | 3.79 | — | — | — |
Muthoot Finance's peer comparison reveals a compelling valuation proposition. With a P/E ratio of 22.14x, the stock trades at a significant discount to diversified NBFCs like Bajaj Finance (34.18x) and Cholamandalam Investment (31.11x), despite delivering superior ROE of 20.32%—the highest amongst major peers. This valuation gap appears unjustified given the company's market leadership, consistent profitability, and strong growth trajectory.
The price-to-book value of 4.64x is higher than Shriram Finance (2.71x) but lower than Bajaj Finance (6.06x), reflecting the market's recognition of Muthoot Finance's strong return profile. The company's debt-to-equity ratio of 3.38 times is amongst the most conservative in the peer group, providing additional comfort on financial stability. The dividend yield of 0.77%, whilst modest, reflects the company's preference for retaining capital to fund growth opportunities.
"Muthoot Finance's combination of 20%+ ROE, market leadership in gold loans, and reasonable valuation at 22x earnings presents a rare opportunity in the NBFC space—particularly as gold prices remain supportive and credit demand stays robust."
Valuation Analysis: Expensive but Growth Justifies Premium
At the current market price of ₹3,712.50, Muthoot Finance trades at a P/E ratio of 22.14x trailing twelve-month earnings—below the industry average of 23x but at a premium to its own historical averages. The stock's valuation grade has oscillated between "Fair" and "Expensive" over recent months, currently classified as "Expensive" as of November 14, 2025. This premium valuation reflects the market's recognition of the company's exceptional growth momentum and quality of earnings.
The EV/EBITDA multiple of 13.82x and EV/EBIT of 13.93x appear reasonable for a company delivering 15.62% five-year EBIT growth and maintaining industry-leading profitability. The PEG ratio of 0.59x—significantly below 1.0x—suggests the stock remains attractively valued relative to its growth rate, indicating potential upside despite the "Expensive" label.
The stock currently trades just 1.08% below its 52-week high of ₹3,752.90, having more than doubled from its 52-week low of ₹1,751.50—a remarkable 111.96% appreciation. This price performance reflects strong institutional conviction, with the stock consistently breaking through resistance levels as earnings delivery exceeded expectations quarter after quarter.
Based on the current growth trajectory and assuming 20-25% earnings growth over the next 12-18 months, a fair value estimate of ₹4,200-4,500 appears reasonable, implying 13-21% upside from current levels. This target assumes the company maintains its ROE above 20%, continues market share gains in gold loans, and navigates the interest rate environment without significant margin compression.
Shareholding Dynamics: Institutional Confidence Building
The shareholding pattern of Muthoot Finance reveals interesting institutional dynamics. Promoter holding has remained rock-solid at 73.35% over the past five quarters, demonstrating strong promoter commitment and alignment with minority shareholders. The absence of any pledging of promoter shares provides additional comfort on corporate governance and financial stability.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 73.35% | 73.35% | 73.35% | 73.35% | 0.00% |
| FII Holding | 11.58% | 10.84% | 11.03% | 10.26% | +0.74% |
| Mutual Fund Holding | 9.46% | 10.24% | 10.03% | 11.33% | -0.78% |
| Insurance Holdings | 0.73% | 0.72% | 0.75% | 0.61% | +0.01% |
| Other DII Holdings | 1.18% | 1.26% | 0.97% | 1.05% | -0.08% |
| Non-Institutional | 3.71% | 3.60% | 3.88% | 3.40% | +0.11% |
Foreign institutional investor (FII) holding increased to 11.58% in September 2025 from 10.84% in the previous quarter, indicating growing international investor interest in the stock. The sequential increase of 74 basis points suggests renewed confidence following the strong Q2 results. With 696 FII accounts holding the stock, the investor base appears well-diversified.
Mutual fund holding declined marginally to 9.46% from 10.24% in June 2025, with 35 schemes holding positions. This 78 basis point reduction likely represents profit-booking by some funds after the stock's strong rally rather than a fundamental concern. The overall institutional holding of 22.95% remains healthy and provides liquidity support to the stock.
Insurance company holdings stood at 0.73% in September 2025, showing modest sequential increase. The relatively low insurance holding suggests potential for further institutional accumulation as the company's track record strengthens. Non-institutional holdings increased slightly to 3.71%, indicating retail investor interest remains robust.
Stock Performance: Spectacular Wealth Creation
Muthoot Finance has delivered exceptional returns across all timeframes, significantly outperforming both the Sensex and its NBFC peer group. The stock's one-year return of 106.25% compares favourably against the Sensex's 8.40% gain, generating alpha of 97.85 percentage points. This outperformance reflects the market's recognition of the company's superior earnings growth and operational execution.
| Period | Stock Return | Sensex Return | Alpha | NBFC Sector |
|---|---|---|---|---|
| 1 Week | +14.94% | +1.06% | +13.88% | — |
| 1 Month | +15.38% | +2.52% | +12.86% | — |
| 3 Months | +34.63% | +4.34% | +30.29% | — |
| 6 Months | +64.07% | +3.40% | +60.67% | — |
| YTD | +73.40% | +7.63% | +65.77% | — |
| 1 Year | +106.25% | +8.40% | +97.85% | +24.77% |
| 2 Years | +187.77% | +29.52% | +158.25% | — |
| 3 Years | +241.14% | +36.47% | +204.67% | — |
| 5 Years | +212.53% | +92.72% | +119.81% | — |
The stock's recent momentum has been particularly impressive, with returns of 14.94% over one week, 15.38% over one month, and 34.63% over three months. The six-month return of 64.07% and year-to-date gain of 73.40% place Muthoot Finance amongst the top performers in the broader financial services universe. The stock's outperformance versus the NBFC sector (which returned 24.77% over one year) by 81.48 percentage points underscores its unique positioning.
The risk-adjusted return of 3.41 over one year, compared to the Sensex's 0.69, indicates that investors have been handsomely compensated for the stock's volatility of 31.14%. The positive Sharpe ratio and classification as "Medium Risk High Return" make the stock suitable for growth-oriented investors with moderate risk appetite. The beta of 1.20 suggests the stock is 20% more volatile than the broader market, amplifying both gains and losses.
Technical indicators remain overwhelmingly bullish, with the stock trading above all key moving averages—5-day (₹3,333.45), 20-day (₹3,243.85), 50-day (₹3,111.80), 100-day (₹2,877.18), and 200-day (₹2,561.01). The MACD, Bollinger Bands, KST, and Dow Theory all signal bullish trends on both weekly and monthly timeframes. The trend changed to "Bullish" from "Mildly Bullish" on August 14, 2025, and has sustained this momentum through strong earnings delivery.
Investment Thesis: Quality Growth at Reasonable Price
Muthoot Finance presents a compelling investment case built on four pillars: exceptional quality, outstanding financial momentum, reasonable valuation despite recent re-rating, and strong technical trends. The company's proprietary Mojo Score of 90/100 with a "Strong Buy" rating reflects this multi-dimensional strength.
The "Excellent" quality grade stems from the company's consistent delivery of 20%+ ROE, healthy five-year sales CAGR of 16.77%, and strong institutional participation of 22.95%. The "Outstanding" financial trend reflects record quarterly metrics across net sales, operating profit, and net profit. The "Bullish" technical trend, combined with the stock trading near 52-week highs, suggests continued momentum.
Whilst the valuation grade of "Expensive" may give pause, the PEG ratio of 0.59x indicates the growth rate more than justifies the current multiple. The company's ability to sustain 40%+ revenue growth and 90%+ profit growth in Q2 FY26 demonstrates that the earnings trajectory remains robust, potentially warranting further multiple expansion.
Key Strengths & Risk Factors
KEY STRENGTHS
- Market Leadership: Largest gold financing company in India with unmatched brand recognition and distribution reach across 5,000+ branches.
- Exceptional Profitability: ROE of 20.96% and PAT margin of 33.11% significantly above industry averages, reflecting pricing power and operational efficiency.
- Outstanding Growth Momentum: Seven consecutive quarters of double-digit sequential growth, with Q2 FY26 profit up 90.36% YoY.
- Asset Quality: Secured gold loan portfolio with conservative LTV ratios provides strong downside protection and minimal credit risk.
- Favourable Macro Backdrop: Rising gold prices enhance lending capacity and collateral values whilst driving customer acquisition.
- Strong Promoter Commitment: 73.35% promoter holding with zero pledging demonstrates long-term alignment with shareholders.
- Institutional Confidence: Growing FII participation (11.58%) and healthy overall institutional holding of 22.95% provide liquidity and validation.
KEY CONCERNS
- Elevated Leverage: Debt-to-equity ratio of 3.76x is at multi-quarter highs, requiring careful monitoring as growth continues.
- Gold Price Dependency: Business model heavily reliant on gold price trends; any sharp correction could impact loan demand and collateral values.
- Interest Rate Sensitivity: Rising borrowing costs could compress margins if not passed through to customers effectively.
- Valuation Premium: Stock classified as "Expensive" and trading near 52-week highs leaves limited margin of safety for new investors.
- Competitive Intensity: Increasing competition from banks and fintech players in the gold loan space could pressure market share and margins.
- Regulatory Risks: NBFC sector faces evolving regulatory landscape; any adverse changes could impact growth or profitability.
- Geographic Concentration: Significant presence in South India creates regional concentration risk.
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Sustained gold price strength supporting loan growth and collateral values
- Continued branch network expansion driving market share gains in tier-2/3 cities
- Operating leverage benefits as scale increases and fixed costs get absorbed
- Potential for further FII/institutional accumulation given strong fundamentals
- Digital initiatives enhancing customer experience and reducing acquisition costs
RED FLAGS TO MONITOR
- Any further increase in debt-to-equity ratio beyond 4.0x levels
- Sharp correction in gold prices impacting collateral values and demand
- Margin compression due to rising funding costs or competitive pressures
- Slowdown in sequential growth momentum below 10% levels
- Adverse regulatory changes impacting NBFC lending norms or gold loan LTV ratios
The forward outlook for Muthoot Finance remains constructive, supported by robust credit demand, favourable gold price trends, and the company's demonstrated execution capability. The management's focus on expanding the branch network whilst maintaining asset quality discipline positions the company well for sustained growth. However, investors should monitor leverage levels, margin trends, and any signs of competitive pressure in the gold loan segment.
The company's ability to maintain 20%+ ROE whilst scaling operations will be critical. Any deterioration in this key metric would warrant a reassessment of the investment thesis. Similarly, the sustainability of 40%+ revenue growth rates over the medium term remains questionable, suggesting that growth moderation should be expected as the base effect kicks in.
The Verdict: Strong Buy for Growth Investors
Score: 90/100
For Fresh Investors: Muthoot Finance represents an excellent opportunity to participate in India's gold loan growth story with the market leader. Despite the "Expensive" valuation tag, the PEG ratio below 1.0x, outstanding financial momentum, and 20%+ ROE justify accumulation on dips. Consider building positions in tranches given the stock's proximity to 52-week highs, with initial entry around current levels and subsequent additions on any 5-7% corrections.
For Existing Holders: Continue holding with conviction. The Q2 FY26 results validate the growth thesis, and the company's operational execution remains exemplary. The stock's technical strength and improving institutional participation suggest the uptrend has further room to run. Consider partial profit-booking only if the stock rallies 15-20% from current levels without corresponding earnings support, or if debt-to-equity exceeds 4.5x.
Fair Value Estimate: ₹4,200-4,500 (13-21% upside potential over 12-18 months)
Rationale: The Strong Buy rating reflects Muthoot Finance's rare combination of market leadership, exceptional profitability (20%+ ROE), outstanding growth momentum (90% profit growth), and reasonable valuation (PEG 0.59x). The company's secured business model, strong promoter commitment, and favourable gold price dynamics provide downside protection. Whilst leverage bears monitoring, the overall risk-reward remains highly attractive for growth-oriented investors.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Investments in equity markets are subject to market risks, and investors may lose their entire capital.
