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

Management's outlook for Mahindra & Mahindra Financial Services Limited (M&M FIN) emphasizes cautious optimism for the remainder of FY 2026. The first quarter saw subdued performance due to varying momentum across different segments. Key takeaways from the management's forward-looking points include:

1. Disbursement and Market Share: The tractor lending business stood out with a robust 21% growth in disbursements, showcasing the company's intent to capture increased market share in favorable segments. Overall disbursements for Q1 reflected only a 1% growth, signaling challenges in other categories.

2. Margins and Pricing: The company maintained steady yields despite intense competitive pressure and is seeing positive movement in margins, with a net interest margin (NIM) at approximately 6.5%. The management believes that margins have bottomed out and expects modest improvements moving forward.

3. Asset Quality: The gross stage 2 and 3 asset quality combined remains stable at 9.7%, consistent with last year's figures. The management's target is to keep this below 10%. There is a continued focus on maintaining strict underwriting standards to manage credit costs effectively.

4. Growth Drivers and Diversification: Management is keen on leveraging tailwinds in the rural sector, especially due to favorable cash flows from good monsoon conditions and rising Minimum Support Prices (MSP). Additionally, they foresee growth opportunities across various avenues including the SME segment and fee-based income.

5. Projected Growth: The management expressed a medium-term target of achieving mid-teen disbursement growth, indicating an optimistic outlook contingent on macroeconomic conditions improving in the latter part of the year.

6. Capital Position: Post a recent rights issue, M&M FIN is well-capitalized to pursue growth, aiming for a Tier 1 capital ratio of 17.9%.

7. Upcoming Challenges: Despite the positive sentiment, management remains aware of existing challenges in segments like entry-level passenger vehicles and certain CV categories. There's an acknowledgment of ongoing operational nimbleness needed to adapt to varied market conditions.

Overall, M&M FIN appears to be strategically positioned for potential growth while navigating current market challenges.

1. Question: "What are the updates on your venture into housing and the universal housing approach?"

Answer: We find the affordable housing segment very attractive. The transformation of our rural housing subsidiary, MRHFL, is progressing well. We've streamlined operations, reduced the workforce from 9,000 to 5,500, and improved ticket sizes and pricing. Once we establish a strong foundation in the mortgage playbook, we'll amplify our growth strategies in this area.

2. Question: "What is your strategy for distribution moving forward, especially as your branch count has remained stagnant?"

Answer: Our branch count, currently around 1,370, remains stable as we focus on profitable locations. While the number of branches hasn't drastically increased, we engage with over 6,000 dealers, enhancing coverage where vehicle purchases occur. Our strategy is to deepen connections at the dealership level and adapt branches to support multiple products, including the SME business, leveraging our existing infrastructure.

3. Question: "What are the risks and outlook for the CV financing segment considering the decline in disbursement?"

Answer: We've chosen to steer clear of competing for fleet operators in the M&HCV segment due to margin concerns and remained focused on SCV and LCV financing, where margins are more favorable. The lack of excitement in the broader CV market has influenced our strategy, and we expect to capture growth in segments relevant to agriculture and rural logistics.

4. Question: "What is your growth outlook for the year, taking into account the muted Q1?"

Answer: It's early in the year to provide full-year guidance. Despite a slow Q1, we're optimistic about leveraging favorable tailwinds in rural markets, especially during the upcoming festival season. We aim for mid-teen disbursement growth over the longer term, which is crucial for catalyzing earnings growth.

5. Question: "How do you see the credit cost evolving in the coming quarters given your performance in Q1?"

Answer: We're managing a target credit cost between 1.3% and 1.7% for the full year. While Q2 traditionally sees spikes due to seasonality, we're proactively optimizing our collection processes to manage volatility. We aim to keep GS2 and GS3 combined below 10%, but understand challenges may arise.

6. Question: "What are your expectations regarding write-offs given the increases observed recently?"

Answer: The rise in write-offs appears significant only in absolute terms; as a percentage of the average assets, we remain stable. Our goal is to reduce write-offs moving forward. In FY '26, we anticipate maintaining write-offs within our overall credit cost target, optimizing our strategies as necessary.

7. Question: "What are your plans regarding non-Wheels business growth, and what does your ROE roadmap look like?"

Answer: We aim for non-Wheels business to grow gradually and constitute 25% of our mix by FY '30. Attaining a mid-teen ROE requires an ROA around 2.2%. This involves addressing pricing, cost of goods, and operational expenses among other levers to facilitate sustained profitability and growth.

8. Question: "Could you elaborate on how you aim to deepen wallet share and diversify your product offerings?"

Answer: We actively monitor product per customer metrics, leveraging our licenses in fixed deposits, insurance, and mutual funds. Our strategy will capitalize on existing customer relationships to enhance cross-selling, aiming to utilize our branch network to improve product penetration and increase overall customer value.

9. Question: "What is the composition of your used vehicle disbursement strategy?"

Answer: Our used vehicle disbursement consists of both financing existing customers through top-ups and purchasing from dealerships. We're cautious about new-to-Mahindra sales to manage risks effectively while maintaining a balanced portfolio across existing and new customers in the used vehicle market.

10. Question: "What are the implications of the recent repo rate cut on your funding costs and margins?"

Answer: While there's a lag in passing repo cuts onto loans linked to MCLR, we expect incremental benefits to show in the upcoming quarters. Our fixed-rate debt currently ranges around 7.10% to 7.20%. We will monitor operational performance closely to maintain favorable NIMs, leveraging our distribution network for competitive advantage.