Gold loan company Muthoot Finance Ltd posted impressive earnings in the December quarter (Q3FY26), with gold loan assets under management (AUM) rising 50% year-on-year to around ₹1.4 trillion, beating expectations. This was backed by strong demand for gold loans amid elevated gold prices. Also, unsecured and microfinance lending tightening has led borrowers to shift to gold-backed loans to meet their funding needs.
Demand for gold loans accelerated during the festive season and has remained strong through January and February, management said in the earnings call. Among other positives, asset quality improved due to auctions and legacy defaulters repaying their gold loans. Gross Stage 3 assets (loans overdue for more than 90 days) fell to 1.58% from 2.25% in the previous quarter. Net interest margins and spreads were broadly stable during the quarter.
Analysts at Motilal Oswal Financial Services have raised FY26, FY27 and FY28 earnings-per-share estimates by around 12%, 9% and 7%, respectively to factor in higher loan growth and stable recoveries from the non-performing assets (NPA) pool.
“As the market leader among NBFCs (non-banking financial companies), Muthoot is well placed to capture a disproportionate share of this incremental demand and should continue to outpace peers,” said a Motilal report dated 12 February. Management said while competition exists, the gold loan market remains under-penetrated, with banks holding ₹13 trillion of gold loans and NBFCs only around ₹3 trillion.
Tonnage fell 2% sequentially in Q3FY26. Gold loans are typically short-cycle, so higher gold prices mean customers pledge less gold for the same loan amount, driving tonnage down even if AUM is healthy, management said. Also, despite the rally in gold prices, the average loan-to-value (LTV) on the outstanding portfolio remains at a comfortable 57%, well within the 75% regulatory cap, providing a substantial cushion against price volatility, management added. LTV represents the maximum percentage of gold’s market value that a lender will provide as a loan.
Also, the Reserve Bank of India’s draft proposal to eliminate the requirement for prior approval for branch openings is significantly positive. But as of now, Muthoot has not changed its branch-addition plans and will continue its calibrated approach.
Why did the stock fall 12% in a day?
Despite a solid performance in Q3FY26, the stock tanked 12% intraday to ₹3,552.70 on Friday. Rati Pandit, lead analyst–banks, gold NBFCs and HFCs at Nirmal Bang Institutional Securities, said, “There is pressure building on gold prices since yesterday due to strong US job data and talks of Russia moving back to trading in US dollars, which does not bode well for. gold prices.
“Amid these developments, there could have been some profit-booking in the Muthoot stock, given the marginal reduction in tonnage sequentially. Its rich valuations of three times estimated FY28 absolute book value already factor in the positives.”
Volatility in gold prices remains a key monitorable for the stock, which has rallied 55% over the past year. Sharp movements in gold prices tend to affect customer consumption patterns and thereby short-term disbursement trends.
