Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong support from MPG

MCSL is an integral part of MPG, whose flagship company is MFL. MCSL derives significant benefits from its linkages with the group. The group diversified its operations into vehicle financing through MCSL. The company has common promoters and promoter directors with the other MPG companies. Mr Thomas John Muthoot is the chairman of MCSL and also holds directorships in several companies belonging to Muthoot Pappachan Group. The company also has strong operational linkages with other group companies. It has the third largest portfolio in the group and has been leveraging the branch network of the group to grow its book. Besides its own sales force, MCSL has access to the wide branch network and large clientele of MFL for origination of new loans and collections. MCSL, being an integral part of the group, will continue to receive operational and managerial support from MPG on an ongoing basis and timely financial support in case of any exigencies.

Adequate capitalisation

Capitalisation has improved during fiscal 2025 on account of accruals. MCSL’s networth has improved to Rs 658.1 crore and gearing was 4.3 times as on March 31, 2025, as compared to Rs 611.8 crore and 2.7 times, respectively, as on March 31, 2024. The capital position has remained adequate despite no major capital infusion in the past five years. The company’s philosophy is to maintain gearing at around 5 times on steady-state basis.

Extensive experience of the promoters and management in the vehicle finance sector

Each of the three promoter directors have more than three decades of experience in the business of lending, beginning with gold loans, and have forayed into two-wheeler financing, microfinance and housing finance over the years. The group ventured into two-wheeler financing in 1998 and since then has expanded into financing used cars, consumer durables and small-ticket business loans. The company also has strengthened its management by onboarding Mr Mathews Markose, a banking professional with 26 years of experience, as Chief Executive Officer; Mr Ramandeep Singh Gill, chartered accountant with over 11 years of experience, as Chief Financial Officer; and Ms Umadevi as Chief Risk Officer, along with others. The team has reinforced the systems and processes of the company, which will support the planned scale-up while maintaining the asset quality. The group has established a strong reputation and brand in India, particularly in South India and has an appropriate assessment and underwriting methodology, which is being constantly refined

Weakness:

Modest, though improving, asset quality

Company’s asset quality has seen steady improvement given focus has been towards collections. The average monthly collection efficiency (including overdues but excluding prepayments) has remained at 97% during fiscal 2025. Apart from collections, the company also sold its non-performing portfolio to ARCs. During last 2 years, the company sold cumulative Rs 340 crore of portfolio was sold to ARC. On account of these steps, the company’s gross NPAs (on reported basis) stood at 4.88% as on March 31, 2025 as against 10.2% as on March 31, 2024. The company has been maintained provisioning cover of 60% during last 1-2 years. On an incremental basis, the company has not been facing any severe portfolio quality issues which is also benefitting them to focus on growth and improve on profitability. Nevertheless, being in vehicle finance segment (especially in two and four wheelers), the company is prone to volatility in asset quality performance and hence its ability to maintain collections across soft and hard buckets will remain key monitorable.

Moderate, though improving, earnings profile

MCSL’s profitability has also seen steady improvement during last 4-8 quarters primarily on the back on reduction in credit costs and improvement in net margins on account of growth. During fiscal year 2025, the company reported PAT and RoMA stood at Rs 45.8 Crore and 1.5%, as compared to Rs 122.7 Crore and 5.2% in the previous fiscal year which was supported by writing back of provisions of Rs 139 Crore in the second quarter of fiscal year 2024. The moderation in profitability is on account of the reduction in the net interest margin to 7.6% in fiscal year 2025 as compared to 8.5% in the previous fiscal. The operating expenses have improved to 5.9% in the fiscal year 2025 as against 6.6% for the previous fiscal. Furthermore, given that around 91% of the portfolio consists of the high yielding asset class(two-wheelers), is expected to support the company’s profitability over the medium term.

Geographically concentrated portfolio

Although MCSL has sequentially reduced the concentration in its portfolio over the years, its operations continue to be largely concentrated in the southern states of the country. Concentration in the southern states reduced from 83% in March 2018 to 70% in March 2020 and further to 50% as on March 31, 2025. MCSL’s operations are concentrated in Kerala, which accounted for 14.5% of hypothecation loans as on March 31, 2025, though it has declined from 42% as on March 31, 2019. However, over the past 4-5 years, MCSL has entered the northern and eastern parts of India. The company plans to further reduce its dependence on the southern states over the medium term. Crisil Ratings believes the portfolio will continue to remain concentrated in the southern region, primarily because of MPG’s strong foothold in the south, and hence would be susceptible to geography-specific disruptions.