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

Management provided a positive outlook during the earnings conference call, emphasizing a significant shift towards growth. Notably, the completion of their business transformation project, Udaan, is expected to yield strong results across customer engagement, dealer relations, and operational efficiencies.

Key forward-looking points include:

1. Profitability and ROA: The company reported a notable increase in profitability with a Q3 Return on Assets (ROA) of 2.5%, demonstrating a sequential growth of 59% in Profit After Tax (PAT) over the prior quarter, and a 76% increase for the first nine months of FY26. The nine-month ROA stands at 1.9%, with aspirations to hit a 2% ROA threshold.

2. Asset Quality: Gross Stage 3 (GS3) assets remained stable at 3.8%, showcasing a decrease in asset quality issues. Gross Stage 2 and 3 combined totaled below 10%, reinforcing confidence in managing credit risks.

3. NIM Expansion: The management highlighted a 50 basis points quarter-on-quarter expansion in Net Interest Margin (NIM) to 7.5% for Q3, with a nine-month NIM of 7.1%. Management aims to sustain or improve these margins as they pivot towards growth.

4. Disbursement Growth: The company reported a robust 30% quarter-on-quarter increase in disbursements. Tractor financing showed a remarkable 65% growth, contributing to the best disbursement quarter ever in Q3. The firm also noted plans to amplify growth, particularly in the emerging suburban markets for tractors.

5. Strategic Expansion into Mortgages and SMEs: Management plans to enhance the mortgage segment's potential by possibly merging its housing finance subsidiary with the parent company. The SME business has reached an AUM of approximately INR 8,000 crores, indicating promising growth prospects ahead.

6. Capitalization: The company maintains a strong capital position with a Tier 1 ratio of 17.4%, providing the necessary leverage to fund future growth initiatives.

These strategies reflect an optimistic approach to maintaining profitability and enhancing asset quality, while positioning the company for sustainable growth in the competitive financial landscape.

Question 1: Mahrukh Adajania: "After the ECL model annual reset, do you expect credit costs to hold at current levels of 1.3% over the next few quarters? Can you also highlight any significant changes in the ECL model?"

Answer: I mentioned that our credit cost should sustain between 1.5% to 1.7%. Currently, we're at 1.8%, so we remain confident. We aim to keep GS2 and GS3 balanced. Regarding ECL changes, we refined our model to be more representative, moving from a 42-month to a broader historical LGD calculation, aligning with industry practices. This should accurately reflect our asset quality.

Question 2: Abhijit Tibrewal: "Is the momentum we witnessed after the GST cut sustainable going into Q1?"

Answer: The GST cut did boost demand in Q3, particularly for tractors. However, after the festive season, demand has softened somewhat, with rural segments performing better. While Q1 may not match Q3's growth, we expect stability, driven by rural demand. We intend to maintain or improve our market share across segments, adjusting strategies accordingly.

Question 3: Shreya Shivani: "What explains the disparity in industry volume growth versus our CV, CE disbursal growth this quarter?"

Answer: Our conservative approach focuses on profitable segments, addressing fleet market consolidation effects. While we've maintained unit growth, ticket sizes have rationalized post-GST, affecting disbursements. We are targeting retail over larger fleet operators and balancing risk versus growth in this sector, avoiding aggressive expansion amidst market volatility.

Question 4: Nidhesh: "From a medium-term perspective, what are your loan growth aspirations and expected loan book mix changes?"

Answer: We aim for mid-teens CAGR growth, leveraging both wheels and new segments like mortgages and SME. By FY'30, we want to reduce our wheels business share from 88% to 70%. Diversifying will stabilize growth and mitigate risks associated with being predominantly wheels-focused. The new segments should contribute positively over time.

Question 5: Viral Shah: "With the ECL refresh and overlays, how do you approach seasonality in credit costs?"

Answer: While management overlays exist, we won't use them to smooth earnings. Our focus is on maintaining GS2 and GS3, ensuring their stability. Credit costs should be driven by our operational performance rather than accounting adjustments. We plan to uphold these metrics actively, seeking consistent performance instead of volatility.