Mahindra & Mahindra Financial Services Limited — Q1 FY26 earnings call

Call held 22 Jul 2025

Management summary

Mahindra Finance reported a muted Q1 FY26 with 1% disbursement growth and 3% PAT growth to ₹530 crores. Despite challenges in some segments like CV and SME, tractor lending showed strong 21% growth. Asset quality remained stable with GS2+GS3 at 9.7%, and NIMs are believed to have bottomed out at 6.5%. The company remains optimistic for the rest of the year, citing rural tailwinds and festival season demand.

Highlights

  • Tractor lending business recorded 21% disbursement growth, leading to market share gains.

  • GS2 plus GS3 remained stable at 9.7%, within the target range of under 10%.

  • MRHFL, the mortgage subsidiary, turned PAT positive in Q1, indicating a successful turnaround.

  • Fee-based income showed healthy growth, supported by the insurance corporate agency license.

  • NIMs are believed to have bottomed out at 6.5%, with positive trends observed on incremental borrowing costs.

  • Collection efficiency improved by 100 bps in Q1 FY26 compared to Q1 FY24 and FY25.

Concerns

  • Overall disbursement growth was muted at 1% for the quarter.

  • SME business experienced a decline in disbursements due to an organizational rejig.

  • CV business saw degrowth as the company calibrated its participation in certain segments.

  • Credit cost marginally increased in Q1, primarily due to an uptick in PCR coverage.

  • Entry-level passenger vehicles and some CV segments continue to face softening and prolonged stress.

  • Employee cost increased by 11% YoY despite a decline in employee count, attributed to a shift from on-roll to off-roll staff.

Key financials

  1. PAT ₹530 Cr +3%YoY
  2. Disbursement Growth 1%
  3. Book Growth 15%
  4. Income Growth 18%
  5. GS2 plus GS3 9.7%
  6. Post-tax ROA 1.6%
  7. Tier 1 Capital 17.9%
  8. NIM 6.5%
  9. Employee Cost YoY Growth 11%

What they filed

Q1 FY27: revenue up 12.5%, net profit up 69.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,913 4,143 4,241 4,419 4,473 +14%4,754 +15%4,800 +13%4,972 +13%
Net profit369 899 563 530 569 +54%810 −10%873 +55%899 +70%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Tractor Lending
    21% Disbursement Growth
  • SME Business
    — Disbursement Growth28% Book Growth
  • CV Business
    — Disbursement Growth
  • Pre-owned Vehicles
    17% Share of Total Disbursement
  • SME LAP Business
    50% Share of SME Business

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Tier 1 capital at 17.9% after ₹3,000 crores rights issue, indicating strong capitalization for growth.
    The Rs. 3,000 crores means that our Tier 1 is at 17.9%, and we are very well capitalized for growth.

Guidance & targets

Asset Quality

  • GS2 plus GS3 Asset Quality · ongoing · High confidence within 10%
    Our collection performance was quite steady. If you recollect, we have always said that our GS2 plus GS3, we target to be within the 10% range. Q1 came in at 9.7%.

    — Raul Rebello

Credit Cost

  • Credit Cost Credit Cost · full year · High confidence 1.3% to 1.7%
    I do not want to give a Q2 guidance exactly on credit cost. I think what we have provided is from a full year basis, we would like to operate in the 1.3% to 1.7%.

    — Raul Rebello

Profitability

  • NIM Profitability · ongoing · Medium confidence grow from 6.5%
    Overall, from a NIM standpoint, I did comment last time that we do believe our NIMs have bottomed out at 6.5%. We do look at abilities to lever up on whether they are pricing capabilities or their cost of funds on stock of cost of fund is not right now playing out, it will play out eventually, but we see positive trends there.

    — Raul Rebello

  • ROE Profitability · medium term · Medium confidence mid-teen growth (15%)
    Yes. So, on the ROE front, clearly, I think we have hit close to 12%, 12.5% last year, this year of course they have come down because of the Tier 1 going up. Our first of to get to 15%.

    — Raul Rebello

  • ROA Profitability · medium term · Medium confidence 2.2%
    To get to 15%, we need to 2.2% at least ROA to lever up at least lever of 6x. So, there is a plan to get to that 2%, 2.2%.

    — Raul Rebello

Growth

  • Disbursement/Book Growth Growth · medium term · Medium confidence mid-teen growth
    It is important for us to at least target a mid-teen growth, whether it's a disbursement growth, which will then lead to a book growth, which will lead into earnings growth, etc., etc.

    — Raul Rebello

Diversification

  • Non-Wheels Business Mix Diversification · FY30 · High confidence 25%
    Yes, see, I will just be consistent with what I said earlier, it's a little long way out by FY '30, we look to non-Wheels business to be 25% of the mix, right, by FY '30.

    — Raul Rebello

Cost of Funds

  • Cost of LCD Debt (3 years) Cost of Funds · ongoing · High confidence 7.10% to 7.20%
    So, if you look at, we kind of have, it should be in the range of a 7.10% to 7.20% kind of range, three years LCDs.

    — Pradeep Agrawal

What to watch in Q2 FY26

Overall Disbursement Growth

Next quarter / H2 FY26
Current 1% in Q1 FY26
Target Improvement towards mid-teen growth

Why it matters

Q1 was muted; management expects tailwinds (rural, monsoon, festivals) to drive growth. Verification of this turnaround is key.

So, while the 1st Quarter has been a little bit of a lull. It's too early in the year for us to kind of call the rest of the year, but we do think that there will be opportunities for growth, and we are primed to catch those opportunities for growth.

Risks & concerns

  • Muted growth in Q1 and softening in some segments

    medium

    The lending environment in Q1 was mixed, with softening in entry-level passenger vehicles and some CV segments, leading to 1% overall disbursement growth.

    Management acknowledged

  • Intense competition and pricing pressure

    medium

    Competition is intense, especially from mainstream banks in vehicle financing, impacting pricing and yields.

    Management acknowledged

  • Volatility in cash flows of rural/semi-urban, agriculture customers

    medium

    Customers in rural and semi-urban areas, particularly agriculture, have volatile cash flows, which can impact collection performance.

    Management acknowledged

  • Seasonal uptick in credit costs/slippages in Q2

    medium

    Q2 typically sees higher slippages and challenges due to monsoon disruptions, potentially impacting credit costs.

    Management acknowledged

Q&A highlights

7 direct
Universal Housing Approach and Branch Strategy Direct
on the MRHFL and the overall housing aspirations, we find the housing segment, especially the affordable housing, extremely attractive. As I mentioned earlier, we need to have conviction that when we unlock the playbook, whatever is the existing housing playbook needs to be put in order. There's no point running one shop, which is not yet set in order and start something else. I am very pleased with the way in which MRHFL is moving right now.

Clarifies the cautious approach to housing finance expansion, focusing on stabilizing the existing mortgage subsidiary (MRHFL) first, which is now PAT positive. Also explains branch strategy focusing on dealer network and digital.

Asked by Avinash Singh

CV Business Strategy and Market Share Direct
we were never a very large player in the used CV business. Our CV business is largely in the SCV, LCV category, and some amount of business that we were doing for the fleet operators. Where we have seeded ground is where we think, as you know, and I am sure you would have heard bank commentary, many banks are chasing the fleet operators and the pricing for that is really not attractive from an NBFC's balance sheet standpoint. So, we have actively stayed out some of the fleet operators in the M&HCV segment.

Explains the strategic degrowth in CV business, focusing on profitability and specific segments (SCV, LCV, ICV, buses) where pricing is better and risk is manageable, rather than competing with banks on fleet operators.

Asked by Avinash Singh

Growth Outlook and ROE Targets Partial
So, I think it's a little early in the year to give a full year guidance on growth. Fair to say that the 1st Quarter was quite muted for us, and you would have seen it for other folks also. Do we think that Q1 is the same texture color for the rest of the year? Definitely not. As I said, there are good enough tailwinds to believe that we can turn around. And we remain optimistic with some of the inherent attractiveness of the sector.

Management acknowledges muted Q1 growth but expresses optimism for the rest of the year due to rural tailwinds, while reiterating mid-teen growth and 15% ROE as medium-term aspirations.

Asked by Nischint Chawathe

Cost of Funds and NIM Behavior Direct
I do not think an incremental sourcing will create any stress on our pricing IRR for the future. We have managed to have very strong underwriting now playbooks to make sure that even in the near prime customers, we are able to onboard that with the right risk-based pricing to protect our overall pricing, we are seeing some early good trends on the incremental cost on a quarter-on-quarter basis.

Addresses concerns about rising cost of funds and NIM compression, stating that NIMs have bottomed out at 6.5% and they expect positive trends due to improved underwriting and strategic pricing.

Asked by Mahrukh Adajania

Credit Cost and Delinquency Trends Direct
I do not want to give a Q2 guidance exactly on credit cost. I think what we have provided is from a full year basis, we would like to operate in the 1.3% to 1.7%. Last year, more than 1.3% to 1.5%. But think of it like we would want the credit cost not to go more than 1.7%. And yes, GS3 plus GS2, one of the at least management action is to keep that below 10 bps.

Provides full-year credit cost guidance (1.3-1.7%) and reiterates the GS2+GS3 target below 10%, acknowledging Q2 seasonality and efforts to manage volatility through collection re-orchestration.

Asked by Kunal Shah

Employee Count vs. Cost Direct
So, in Q1, we have kind of moved a certain kind of count of people from the on-roll to off-roll, and that's why I think employee count is looking lower in Q1. Otherwise, our overall employee count is flat quarter-on-quarter basis.

Explains the apparent contradiction of declining employee count but rising employee costs, attributing it to a shift from on-roll to off-roll staff and overall flat employee count.

Asked by Kunal Shah

Pre-owned Vehicles Business Strategy Direct
Piran, yes, there are three parts to this entire used vehicle business that we work with. The first one is existing customers where after a period, we give that forms a large portion of what we do. Second, in terms of the buy and sell, there are three types of channels that we predominantly work with One is the OEM organized channel, where we have a decent market share working with them. Second is with the dealers and the brokers who operate in the market. And the third is the aggregators that we work with. We work with all three of them.

Provides a detailed breakdown of the pre-owned vehicle business strategy, including channels and customer types, highlighting a cautious approach to external PP business to manage delinquencies.

Asked by Piran Engineer

Funding Costs after Repo Rate Cuts Direct
So, if you look at, we kind of have, it should be in the range of a 7.10% to 7.20% kind of range, three years LCDs.

Gives specific guidance on the cost of long-term debt (LCDs) after repo rate cuts, indicating expected incremental benefits on the cost side quarter-on-quarter.

Asked by Piran Engineer

3 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Overview

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.

Business Segment Performance

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 and Credit Costs

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.

Margins and Cost of Funds

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.

Strategic Initiatives and Diversification

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.

Outlook and Growth Drivers

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.

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