M&MFIN - Mahindra & Mahindra Financial Services Limited Share Price

Management provided an outlook characterized by cautious optimism, projecting that growth in the medium to long term could achieve mid to high-teen percentages, although they refrained from specific guidance for FY '26. They emphasized the expected continued strength in the tractor segment, which recorded an 8% growth in the past year, and indicated that passenger vehicles, especially SUVs, would also drive future growth.

Disbursements for FY '25 saw a modest growth of 2%, with the book closing at INR 119,673 crores, reflecting a 17% growth year-over-year. The company's focus will remain on the wheels business, reinforcing its leadership in tractors and aiming to capitalize on growth opportunities, particularly in the LCV and SUV segments. The non-wheels businesses are expected to contribute to diversification, although management notes that these segments would take time to significantly impact overall performance.

Key forward-looking points include:

• Growth Projections: Medium-term target for mid to high-teen growth over the next 3-5 years, with a careful approach to maintaining asset quality and risk management.
• Non-Wheels Contribution: Aiming for a 25% share from non-wheels (SME, leasing, and mortgages) by FY '30, currently at 7%.
• Asset Quality: Guidance for credit cost in a range of 1.3% to 1.7% may imply a need for continued provisions, with a focus on managing collection efficiencies.
• Improving NIMs: Management anticipates they have hit the lowest NIM of 6.5%, with expectations for improvement driven by a reduction in funding costs and a better mix of lending.

Overall, management aims to balance growth aspirations with prudent risk management and operational efficiencies to safeguard profitability.

Here are the major questions from the Q&A section of the earnings call transcript along with their detailed answers:

1. Question: "How do you view disbursements from here on? Any rough outlook on what the disbursement growth would turn out to be, given that there are some segments identified with higher risk or lower yields?"

• Answer: "We anticipate growth in our primary vehicle segments where we hold high market shares, especially in tractors, which currently looks promising. We managed an 8% growth in tractors, but other segments like passenger vehicles continue to face moderation. We aim for growth in the middle to high teens in the medium term, guided by evolving market conditions."

2. Question: "Most of the margin improvement seems driven by the cost of funds; is that correct?"

• Answer: "Cost of funds will indeed improve, but it's not the sole driver for margin enhancement. We are also focused on increasing fee-based income through partnerships and leveraging our corporate agency license. Additionally, our tractor segment, which typically has higher NIMs, is expected to bolster margins."

3. Question: "Do we see the PCR stabilizing here? How do we view it moving forward?"

• Answer: "The PCR has slightly increased to 51.2%. However, I anticipate it will stabilize below 55% over the next few quarters, which means we won't see significant upward movement in the near term. This is based on our collection flows and market dynamics."

4. Question: "Can you highlight the challenges faced in fourth quarter collections and outlook for FY '26 regarding asset quality outcomes?"

• Answer: "In Q4, we experienced challenges due to increased bad debts and typical seasonal variations. However, overall slippage rates remained in line with historical averages. For FY '26, maintaining our collection performance will be crucial, especially as we navigate a potentially tougher economic backdrop."

5. Question: "What are the key segments where you expect growth and how will diversification play a role?"

• Answer: "Growth will mostly come from our wheels business, particularly tractors. We aim to expand our non-wheels segment to about 25% of our AUM within a few years, focusing on the SME and leasing segments as they offer considerable growth potential."

6. Question: "How do you see operating expenses evolving and will they remain sticky?"

• Answer: "While we saw an uptick in Q4, we're targeting an opex level closer to 2.5-2.7%. Diversification into mortgages may introduce some initial costs, but we don't foresee dramatic increases in opex, as overall operational efficiencies continue to improve."

7. Question: "Regarding the EV business, how accretive to margins will this be, especially as a unique opportunity?"

• Answer: "The EV segment presents a robust opportunity for disbursement growth. We don't consider it merely a low-IRR venture; instead, we believe we can maintain attractive yields by tapping into diverse customer segments, enhancing profitability."

8. Question: "What are you targeting in terms of yields from the mortgage business?"

• Answer: "We plan to engage primarily in affordable housing, focusing on sectors that ensure profitable engagement and maintain alignment with our overall yield aspirations. Active management and targeted marketing will be key to drive the desired growth here."

This summary encapsulates the primary inquiries and responses relevant to the earnings call.