Mahindra & Mahindra Financial Services Limited

Mahindra Finance reported a muted Q1 FY26 with overall disbursement growth at 1% and PAT growth at 3%, reaching ₹530 crores. The company's overall book grew by 15%, and income increased by 18%. The post-tax Return on Assets (ROA) for the quarter stood at 1.6%. Management acknowledged the slow start to the year but expressed optimism for the remaining quarters, citing favorable rural tailwinds, good monsoons, and the upcoming festival season as key growth drivers.

The Wheels business experienced mixed results in Q1. Tractor lending was a strong performer, recording 21% disbursement growth and contributing to market share gains. However, segments like entry-level passenger vehicles and certain CV categories saw softening or degrowth. The CV business's degrowth was a strategic decision to calibrate participation, focusing on segments like SCV, LCV, ICV, and buses where margins are better and competition from mainstream banks is less intense. The pre-owned vehicles business accounted for 17% of total disbursements in Q1 FY26, up from 16% in FY25, with a multi-channel strategy involving OEM, dealers, brokers, and aggregators.

Asset quality remained stable, with the combined GS2 plus GS3 at 9.7%, consistent with Q1 last year and within the company's target range of under 10%. Collection performance showed improvement, with Q1 FY26 collection efficiencies 100 bps higher than in Q1 FY24 and FY25. Despite this, credit costs saw a marginal increase in Q1, primarily due to an uptick in PCR coverage. The full-year credit cost guidance is maintained at 1.3% to 1.7%, and management is focused on reducing inter-quarter volatility, especially considering the typical Q2 seasonality for slippages.

Management believes that Net Interest Margins (NIMs) have bottomed out at 6.5%, and they anticipate positive trends on incremental borrowing costs. This outlook is supported by strong underwriting practices, risk-based pricing, and effective leveraging of priority sector lending (PSL) assets. The cost of long-term debt (LCDs) for three-year tenures is expected to be in the range of 7.10% to 7.20%, with incremental benefits from recent repo rate cuts projected to flow in quarter-on-quarter.

The mortgage subsidiary, MRHFL, achieved a PAT positive status in Q1, marking a significant milestone in its turnaround journey, with management expecting continued positive momentum. The SME business, despite a decline in Q1 disbursements due to an organizational rejig and recalibration of distribution strategy, saw its book grow by 28%. The Loan Against Property (LAP) business now constitutes 50% of the SME portfolio. Fee-based income demonstrated healthy growth, bolstered by the insurance corporate agency license. The company also successfully migrated to a new cloud-based Loan Management System (LMS) in June, aiming for enhanced stability and digital versatility.

Despite a muted Q1, management expressed optimism for achieving mid-teen growth in disbursements and overall book for the full year. This growth is expected to be driven by favorable rural tailwinds, good monsoons, and the upcoming festival season. The company's long-term aspirations include achieving a 15% Return on Equity (ROE) by targeting a 2.2% Return on Assets (ROA). Diversification efforts are ongoing, with a strategic goal for non-Wheels business to contribute 25% to the overall mix by FY30.