Muthoot Capital Services Ltd H1 FY26 – When the Two-Wheeler Loan Engine Misfires but Keeps Honking Loudly

1. At a Glance

Picture this: a company from the mighty Muthoot Group, that old-money Kerala powerhouse known for gold loans and television ads more emotional than family soaps. Now take its two-wheeler financing arm, throw in a 41% YoY jump in revenue, but then slap it with an82% collapse in profits— and you have Muthoot Capital Services Ltd (MCSL) in Q2 FY26.

At ₹270 per share, the stock trades at just0.68x its book value, which makes it cheaper than the helmets of the very bikers it finances. With amarket cap of ₹446 crore, MCSL carries debt worth₹2,996 crore— roughly seven times its market cap, making it look more like a debt mutual fund in disguise.

Despite clocking ₹153.55 crore in Q2 revenue (up from ₹108.65 crore YoY), itsPAT slumped to ₹2.83 crore, crushed under higher provisioning and cost pressures. The management swears it’s all “temporary.” The investors, meanwhile, are still stuck in first gear wondering why ROE (7.19%) feels like the mileage of a congested scooter.

The company’sAUM stands at ₹3,284 crore, with89.5% of that in two-wheeler loans, because apparently, Indians never stop buying bikes — just EMI-paying gets tougher. Gross NPAs at6.46%and net NPAs at3.07%hint that recovery agents might need new bikes soon too.

2. Introduction

If you’ve ever taken a loan for a Splendor and had a guy named Sreekumar call you at 7 a.m. about “your overdue installment,” you’ve probably met Muthoot Capital Services’ ecosystem. Founded in 1994 and backed by the venerable Muthoot Pappachan Group, the company’s core business is financing dreams on two wheels and, occasionally, heartbreaks on four.

With over 30 years in the lending business, the group is as much a household name in Kerala as banana chips and political rallies. MCSL began as a gold loan company before its bigger sibling,Muthoot Fincorp, hijacked that segment. So MCSL pivoted totwo-wheeler loansin 2008 — and has since lent enough for half of India’s scooters to vroom on its EMI sheets.

But FY26 has been one long uphill climb. Despite the bumper AUM growth and fresh customer additions (51,288 in Q2 alone), profitability took a nosedive. When yourinterest cost rises to 9.74%while yield on AUM stays around20.35%, margins look healthy on paper, but NPAs have their own horror script.

And yes, while itsCRAR at 22.02%makes RBI smile, the rising delinquencies and co-lending withdrawal indicate that management might be switching lanes to avoid accidents.

3. Business Model – WTF Do They Even Do?

In simple terms:MCSL gives money to people who want to buy vehicles, mostly bikes, sometimes cars, and rarely anything fancy. They earn interest (the “yield on AUM”) and pay their own lenders a slightly smaller rate — that’s the spread they live on.

Their portfolio breakup says it all:

• Two-wheelers:89.5% (Hero, Honda, and everyone whose ad features a helmetless actor)
• Used 4-wheelers:3.5% (the “budget dreams” segment)
• Commercial vehicles:4.5%
• Personal & loyalty loans:1.5%
• Corporate loans:1%

MCSL operates across23 states and 388 districts, with South India dominating the map —48% of AUM sits there, which means if you’ve seen a Honda Activa in Coimbatore, chances are Muthoot owns it (technically).

They benefit immensely from their parent —access to 3,500+ Muthoot Fincorp branchesand cross-selling muscle. The Muthoot brand pulls in borrowers faster than an Ola offer code.

But their Achilles’ heel? Collections. When fuel prices soar and disposable income shrinks, EMI defaults pile up. Hence, the recent spike in NPAs and management’s cautious retreat from co-lending partnerships that offered lower yields.

4. Financials Overview

Let’s crunch the key quarterly numbers fromQ2 FY26: