IDBI Capital has reiterated a “BUY” recommendation on Muthoot Finance, raising its target price to Rs. 4,060 from the current market price of around Rs. 3,530, implying a potential upside of nearly 15%. The brokerage believes the company has entered a structurally stronger growth cycle fueled by elevated gold prices, rising loan ticket sizes, and resilient demand from India’s self-employed and MSME borrowers. Muthoot Finance posted one of its strongest financial performances in recent years during FY26, with standalone profit nearly doubling and consolidated gold loan assets surging sharply. Strong yields, disciplined pricing, robust collateral cover, and expanding branch infrastructure continue to reinforce the company’s leadership in India’s organized gold financing segment.

Muthoot Finance Delivers Explosive FY26 Growth Momentum

The FY26 performance marked a decisive acceleration in profitability and balance sheet expansion. Consolidated assets under management climbed nearly 49% year-on-year to approximately Rs. 1.82 lakh crore, while gold loan AUM alone expanded about 54% YoY to Rs. 1.65 lakh crore. Standalone profit after tax soared roughly 95% to more than Rs. 10,000 crore, highlighting the strength of the underlying lending engine.

Management indicated that the current growth phase is not merely cyclical but structural in nature. Elevated gold prices have increased customer borrowing capacity while simultaneously reducing collateral risk. The company has also benefited from larger loan sizes as borrowers increasingly seek higher-value financing for business and consumption purposes.

Sharp Improvement in Margins Strengthens Profitability

Net interest margins expanded meaningfully during the quarter despite rising funding costs. Quarterly net interest income jumped nearly 79% YoY to Rs. 51,934 million, while operating profit surged more than 105% during Q4FY26.

The company’s lending yields improved to nearly 20.8%, aided by selective pricing hikes ranging between 50–100 basis points across specific products. Additional support came from approximately Rs. 85 crore in one-time income arising from auctions and ARC recoveries.

The operational efficiency profile also improved sharply. Cost-to-income ratio declined to approximately 17.4% in Q4FY26 compared with 28.6% in the corresponding quarter last year, reflecting strong operating leverage.

Higher Gold Prices Continue to Reshape Customer Behavior

Muthoot Finance is increasingly witnessing a transition toward higher-ticket borrowers. Management revealed that smaller-ticket customers are gradually being replaced by borrowers seeking loans between Rs. 50,000 and Rs. 2 lakh or more.

This strategic shift has enhanced profitability and improved average ticket size substantially. The company clarified that lower tonnage growth despite elevated AUM expansion is primarily due to higher gold prices. Borrowers now require less physical gold to secure the same loan amount.

Average gold loan ticket size climbed sharply during FY26, supported by strong gold price appreciation and rising credit demand across semi-urban and rural India.

Competitive Pressures Remain Manageable Despite Aggressive Industry Expansion

The company remains confident about protecting its market leadership despite rising competition from banks and NBFCs. Management emphasized that gold financing remains an operationally intensive business requiring deep customer relationships, rapid loan processing capabilities, and strong branch-level execution.

According to management commentary, these operational barriers make large-scale disruption difficult, even as more financial institutions attempt to enter the segment.

Additionally, the company believes recent increases in gold import duty and restrictions on bullion imports are unlikely to materially impact long-term business prospects because Muthoot primarily lends against household jewellery already circulating within India.

Asset Quality and Collateral Coverage Stay Exceptionally Comfortable

Asset quality indicators remain resilient despite changes in NPA recognition methodology. Management explained that the increase in Stage-3 assets largely reflects the migration toward borrower-wise NPA recognition rather than any material deterioration in underlying credit quality.

More importantly, the company’s average loan-to-value ratio remains near 57%, substantially below the RBI’s regulatory ceiling of 85%. This provides a strong cushion against volatility in gold prices and significantly reduces collateral risk.

Branch Expansion and Diversification Strategy Gather Pace

Muthoot Finance continues to aggressively expand its distribution network. The company plans to open nearly 200–300 additional branches in its core gold loan business. Subsidiary Belstar Microfinance is also accelerating its own gold loan expansion strategy with plans to add nearly 200 branches.

Belstar already operates 81 gold loan branches and has delivered collection efficiency close to 99.85%, reinforcing confidence in diversification initiatives.

Meanwhile, Muthoot Money is undergoing a strategic transformation toward gold loans, with AUM in that business surging roughly 151% YoY to nearly Rs. 9,794 crore.

Financial Outlook Suggests Sustained Earnings Expansion

IDBI Capital expects earnings momentum to remain robust over the next two financial years. The brokerage projects FY27 earnings per share of approximately Rs. 303 and FY28 EPS of nearly Rs. 345.

Return ratios are also expected to remain among the strongest in the NBFC universe, with ROE projected above 25% over FY27–FY28.

Investment View Remains Constructive

Muthoot Finance appears well-positioned to capitalize on India’s expanding organized gold financing opportunity. Elevated gold prices, disciplined risk management, strong collateralization, superior branch penetration, and rising operating efficiencies continue to create a powerful earnings combination.

With healthy loan demand expected to persist across self-employed and MSME segments, the brokerage believes the company can continue gaining market share while maintaining industry-leading profitability metrics.

IDBI Capital’s revised target price of Rs. 4,060, based on approximately 2.7x FY28 estimated price-to-book valuation, reflects confidence in the company’s long-term structural growth trajectory.