Muthoot Finance MD Explains Flat Gold Tonnag: Shares of Muthoot Finance fell more than 12% in February, even as the company reported record loan growth and strong profitability for the nine months ended December 2025. The sharp market reaction raised concerns among analysts about flat gold tonnage in the company’s loan book — a key operational metric for a gold loan-focused lender.
Responding to these concerns, Managing Director George Alexander Muthoot clarified that stable or declining gold tonnage does not signal weaker lending demand. Instead, it reflects the mathematical impact of rising gold prices and higher loan-to-value (LTV) ratios.
Why Gold Tonnage Appears Flat
Muthoot Finance primarily lends against pledged gold ornaments. Traditionally, higher loan growth would imply an increase in the physical volume (tonnage) of gold held as collateral. However, the current environment is different.
According to Muthoot:
“As the gold price increases or the loan-to-value (LTV) goes up, the tonnage has to come down.”
The logic is straightforward. When gold prices rise:
- The value per gram of gold increases.
- Borrowers can secure the same loan amount by pledging less gold.
- Asset under management (AUM) can expand even if gold tonnage remains flat or declines.
In other words, loan growth is being driven by value appreciation rather than volume expansion.
Muthoot added, “The tonnage is dependent on the gold price. I can’t ask customers to bring more gold when, even with lesser gold, they can get the same amount. People take money only what they really need.”
This suggests that customer borrowing behavior remains rational and need-based, rather than speculative.
Strong Financial Performance Despite Market Reaction
Despite investor concerns, Muthoot Finance reported impressive financial performance:
Highlights (9M FY26 – April to December 2025)
- Consolidated AUM: ₹1,64,720 crore
- Up 48% year-on-year
- Consolidated Profit After Tax (PAT): ₹7,209 crore
- Up 84% year-on-year
Q3FY26 (October–December 2025)
- Net Profit: ₹2,656 crore
- Nearly 95% year-on-year growth
- Total Loan Book: ₹1.65 lakh crore
- Up 48% year-on-year
These numbers indicate strong operational momentum, improved margins, and robust credit demand.
Yet, the stock declined sharply. Analysts suggest that markets may be reacting to:
- Concerns about sustainability of gold price-driven growth
- Rising competition in the gold loan segment
- Valuation adjustments after a strong rally
Revised Growth Target for FY26
Reflecting confidence in demand trends, the company has revised its gold AUM growth target upward:
- Earlier Target: 36%
- Revised Target: 45%
The upward revision is supported by:
- Sustained high gold prices
- Strong customer churn (repeat borrowers)
- Increased penetration in semi-urban and rural markets
Gold loans remain attractive in an environment of tight liquidity and higher borrowing costs elsewhere in the financial system.
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Impact of Gold Prices on Business Model
Gold price movements are central to Muthoot’s business model. Rising gold prices offer several advantages:
- Higher collateral value
- Lower credit risk due to over-collateralisation
- Easier recoveries in case of defaults
However, falling gold prices can pose risks, especially if loan-to-value ratios are stretched.
Muthoot Finance has indicated limited downside risk from gold price volatility, given its conservative risk controls and structured auction mechanisms. The company maintains strict internal LTV thresholds to mitigate market risk.
Margins and Competitive Landscape
The gold loan sector has seen rising competition from:
- Banks
- Other NBFCs
- Fintech-backed lenders
Despite this, Muthoot expects margins and yields to remain broadly stable. The company benefits from:
- Established brand trust
- Deep rural presence
- Fast loan disbursement processes
- Strong branch network
Its ability to maintain yields amid competition suggests pricing discipline and operational efficiency.
Branch Expansion Strategy
As regulatory conditions ease, Muthoot plans calibrated branch expansion. However, management has clarified that:
- Lending standards will remain unchanged
- Risk management controls will not be diluted
- Expansion will be gradual and data-driven
This indicates a cautious growth approach rather than aggressive expansion.
Market Capitalisation and Stock Performance
Muthoot Finance currently has a market capitalisation of approximately ₹1,45,175.02 crore. Over the past year, the stock has delivered net gains of nearly 56%, reflecting strong investor confidence prior to the recent correction.
The 12% drop in February may represent:
- Profit booking after a significant rally
- Recalibration of growth expectations
- Short-term reaction to tonnage metrics
Long-term investors often focus more on AUM growth, profitability, and asset quality rather than collateral tonnage alone.
The Bigger Picture
The debate around gold tonnage highlights an important nuance in gold loan businesses. Unlike traditional lenders where loan growth directly correlates with volume expansion, gold loan NBFCs operate in a value-sensitive environment.
When gold prices rise:
- Loan book value expands
- Risk buffers increase
- Tonnage may remain flat
Thus, flat tonnage does not necessarily indicate stagnation. It may simply reflect efficient capital utilisation.
Muthoot’s management has emphasized that customer borrowing remains demand-driven and need-based, not speculative. The company’s sharp profit growth and expanding loan book suggest strong underlying business fundamentals.
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Outlook for FY26
Looking ahead, Muthoot Finance appears positioned for:
- Continued strong AUM growth
- Stable margins
- Controlled credit risk
- Selective branch expansion
While market volatility may persist in the short term, the company’s financial metrics point toward operational resilience.
In summary, the recent stock correction seems more sentiment-driven than fundamentally driven. As long as gold prices remain elevated and customer demand stays strong, Muthoot Finance’s growth trajectory appears intact.
Investors, however, will closely monitor:
- Gold price trends
- Regulatory changes
- Competitive intensity
- Asset quality metrics
For now, management remains confident that rising gold prices, disciplined lending, and strong customer relationships will continue to support growth, even if gold tonnage metrics appear flat.
