Mumbai, November 6, 2025: Muthoot Microfin Ltd. (MML) reported a steady rebound in the September quarter (2QFY26), driven by lower credit costs and improving asset quality, prompting JM Financial Institutional Securities to upgrade the stock to BUY with a revised target price of INR 190, up from INR 155.
The microfinance lender posted a profit after tax (PAT) of INR 305 million, significantly outperforming JM Financial’s estimates by 41%. The improvement was primarily due to credit costs moderating to 3.6%, well below the management’s FY26 guidance of 4–6%.
Asset Quality Improves Further
The quarter saw a marked improvement in asset quality metrics:
-
Gross Stage 3 (GS3) declined 24 bps QoQ to 4.6%
-
Net Stage 3 (NS3) fell to 1.4%
-
Collection efficiency improved to 93.3%, with x-bucket efficiency reaching 99.8%
JM Financial expects credit costs to continue trending down, revising FY26 estimates from 4.2% to 3.3%.
AUM Growth Remains Muted but Recovery Signs Visible
Disbursements rose 28% QoQ, though they were down 15% YoY. This helped MML record AUM growth of 2.5% QoQ, albeit flat YoY. Management highlighted three new product lines expected to drive growth:
-
Micro LAP (Loan Against Property)
-
Gold loans under a co-lending model with Muthoot Fincorp
-
Individual loans for micro-MSMEs
The company remains confident of achieving 5–10% AUM growth for FY26. JM Financial projects 11% and 16% AUM growth for FY26E and FY27E.
Margins, Operating Performance Improve
NIMs for the quarter increased 40 bps QoQ, aided by an uptick in yields and a slight dip in the cost of funds. Operating expenses were flat sequentially, helping pre-provision operating profit (PPoP) rise 14% QoQ to INR 1.5 billion.
With technology investments maturing and loan book growth improving, management expects operating efficiency to strengthen in upcoming quarters.
Valuation Outlook
JM Financial now expects Muthoot Microfin to deliver RoA of 2.1% in FY26E and 3.6% in FY27E, supported by better collections and diversification into non-MFI products. The stock is now valued at 1.0x FY27E BVPS, reflecting improved visibility in earnings recovery.
The brokerage upgraded the rating to BUY, projecting an upside of 17.8% from the current market price of INR 161.