Whalesbook
Muthoot Microfin (MML) has reported a strong FY26, marking a turnaround as the broader microfinance sector recovers from FY25 challenges. Asset Under Management (AUM) grew 13% year-over-year to ₹14,006 crore, surpassing guidance. This growth was driven by increased disbursements, with Q4 FY26 run-rate exceeding pre-FY25 levels.
Asset quality has stabilized, with Gross Non-Performing Assets (GNPA) declining to 3.89% in FY26 from 4.84% a year earlier. Credit costs moderated sharply to 3.5% in FY26, down from 9.4% in FY25. Collection efficiencies improved to 96.43% in Q4 FY26. The stock currently trades around ₹189-190.
MML's strategic shift beyond traditional Joint Liability Group (JLG) lending is showing results. The contribution from its non-JLG portfolio, including individual loans, Micro-LAP, and gold loans, rose to 17% by March 2026 from just 3% in March 2025. The individual loan book demonstrates near-zero delinquency.
This diversification aims to enhance long-term resilience and margins. The company targets a Return on Assets (RoA) rebound, supported by expected declines in funding costs that will benefit net interest margins (NIMs).
MML's valuation stands in sharp contrast to its peers. The company trades at approximately 1.1-1.2 times its FY28 estimated book value. This Price-to-Book (P/B) multiple is significantly lower than CreditAccess Grameen (CAGL), which trades around 2.2 times its book value. MML's trailing twelve-month P/E ratio is negative due to recent losses, while CAGL has a P/E of approximately 41.7x.
This substantial valuation gap suggests potential for MML's stock to re-rate as profitability normalizes. Further supporting this outlook is speculation around M&A in the microfinance sector, particularly the potential sale of CAGL's promoter stake. While Axis Bank has denied participating in bidding for CAGL, any strategic transaction in the sector could positively impact valuations for other listed entities like MML.
The broader NBFC-MFI sector anticipates muted AUM growth of 4-15% in FY26, with a rebound to 15-17% projected for FY27. This growth is expected to be driven by eased qualifying asset criteria and improved asset quality.
Despite positive operational trends, MML faces notable risks. Allegations of investor fraud and money laundering against Muthoot Group Managing Director George Alexander Muthoot by the Enforcement Directorate (ED) raise governance concerns across the group, even if not directly impacting MML's operations.
The aggressive expansion into new products like individual and Micro-LAP loans introduces execution risk. Underwriting quality and collection efficiency in these less familiar areas require sustained focus. MML, with a smaller market cap and recent losses compared to peers like CAGL, may also face greater challenges in attracting capital and maintaining investor confidence. The sector's recovery is still developing, and any increase in delinquencies or unfavorable regulatory shifts could reverse recent gains.
Analysts maintain a positive view on MML's prospects. JM Financial reiterated a BUY rating with a ₹300 target. CRISIL has upgraded MML's outlook to positive. The company is projected to achieve its revised guidance and see sustained RoA expansion in FY26 and FY27. Its positioning as one of the largest players by AUM, coupled with further diversification and potential sector-wide valuation re-ratings, supports a favorable outlook.