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    Mahindra & Mahindra Financial Services Limited

    M&MFIN
    Financial Services·28 Oct 2025
    Management Summary

    Mahindra Finance reported a strong Q2 FY26 with half-year PAT growing 25% to ₹1,100 crores, driven by a 13% AUM growth and NIM expansion to 7%. Asset quality improved significantly with GS2+GS3 at 9.72%, and the rural housing finance subsidiary turned profitable. While Q2 was historically challenging with some regional stress, management remains confident in achieving its annual credit cost target of 1.7% and aims for a 15% medium-term CAGR in disbursements, particularly in PV and Tractor segments.

    Highlights

    5

    • Half-year PAT grew 25% to ₹1,100 crores, indicating strong profitability.

    • NIM expanded from 6.5% to 7% YoY, driven by lower cost of funds and income enhancements.

    • AUM grew 13% and income grew 14%, reflecting robust business expansion.

    • Asset quality showed improvement with GS2+GS3 at 9.72% (vs 10.26% last year Q2) and Stage-2 falling by 7 bps QoQ.

    • The HFC subsidiary achieved significant turnaround, with GS3 below 3% and Net Stage-3 closer to 1%, becoming profitable.

    Concerns

    4

    • Q2 is historically a challenging quarter, leading to higher credit costs compared to Q1.

    • Unseasonal rains and agitations in North and East regions caused some stress in GS2-GS3 build-up.

    • The price cut on new vehicles due to GST changes is expected to impact used vehicle prices and potentially affect used vehicle business growth.

    • The CV segment is not showing the same enthusiasm or growth momentum as PV and Tractor segments.

    What Changed2

    vs Q3 FY26

    Guidance items5 → 7 (+2)Risks discussed5 → 4 (-1)
    Key financials

    Metrics

    8

    Periods

    2

    Headline

    6
    • Half-Year PAT
      ₹1,100 Cr
      YoY+25%
    • NIM
      7%
    • AUM Growth
      13%
    • Income Growth
      14.0%
    • GS2+GS3
      9.7%

    Q2

    2
    • Credit Cost
      2.2%
    • PCR Cover
      53%

    Segment breakdown

    Tractor Business
    41% Disbursement Growth (Q2 YoY)
    Used Vehicle Business
    4% Disbursement Growth (Q2 YoY)18% Share of Incremental Disbursements
    Passenger Vehicle Business
    1% Disbursement Growth (Q2 YoY)40% Share of Book
    SME Business
    12% YoY Growth5% Share of AUM (earlier)
    Rural Housing Finance (HFC)
    3% GS3100% Net Stage-34,700 number Employee Count
    List

    Capital allocation

    1
    high confidence
    CategoryHeadline
    M&A

    HFC Portfolio

    divestment · closed

    Guidance & targets

    7
    CategoryTargetPriority
    Credit Cost
    Annual Credit Cost
    1.7%
    		High
    Asset Quality
    GS2+GS3
    below 10%
    		High
    Disbursement Growth
    Overall CAGR
    15%
    		High
    Disbursement Growth
    Passenger Vehicle Growth
    12%
    		High
    Disbursement Growth
    Tractor Growth
    18-20%
    		High
    Disbursement Growth
    Tractor Growth
    15%
    		High
    Disbursement Growth
    Q3 Disbursement Growth
    sustain
    		Medium

    Credit Cost trajectory

    next quarter
    Current2.2% in Q2
    TargetCloser to 1.7% annual target in Q3/Q4

    Why it matters

    To verify if management can bring down credit costs in Q3 and Q4 to meet the annual guidance, especially after a higher Q2.

    our business model objectives to keep credit cost within 1.7. I mean, for the full year, and if you go back to our past also, Quarter 1 and Quarter 2 always is a slightly higher level and we are able to demonstrate and execute a reasonably better Q3 and Q4.

    How to verify

    key_financials.metrics[label='Credit Cost (Q2)']

    Risks & concerns

    4
    RiskSeverity

    Historically challenging Q2 for asset quality

    Q2 historically sees a steeper climb in GS3 due to operating environment and monsoon impact, though this year's increase was lower. — Management acknowledged

    medium

    Unseasonal rains and agitations in North and East regions

    Disruptions in these regions led to some stress in GS2-GS3 build-up, requiring collection teams to manage within constraints. — Management acknowledged

    medium

    Impact of new vehicle price cuts on used vehicle business

    GST-led price reductions on new vehicles are expected to cause a price deflator effect on used vehicles, potentially impacting value growth. — Analyst acknowledged

    medium

    CV segment growth lagging PV and Tractor segments

    Management does not share the same enthusiasm for CV segment growth as for PV and Tractor, indicating slower momentum. — Management acknowledged

    low

    Q&A highlights

    8

    “we take a for the LGD computation as well as ECL, we take a 42-month period. So, the stock that would have been isolated to watch a 42-month would have been the March 22 stock, which would have performed over a period of 42 months. And that's the number the PCR cover based on the LGD movement over there. But having said that, we are every year we do an ECL model refresh in Q3”

    Clarifies the company's ECL model, its 42-month look-back period, and the annual refresh cycle in Q3, which impacts provisioning.

    asked by Mahrukh Adajania

    2 min read6 chapters

    Detailed Narrative

    01

    Q2 Performance and Half-Year Profitability

    Mahindra Finance reported a robust Q2 FY26, contributing to a 25% PAT growth for the half-year, reaching ₹1,100 crores. The company observed positive momentum in the latter half of Q2, particularly after GST announcements, which is expected to continue into Q3 and Q4. AUM grew by 13% and overall income by 14%, indicating strong business expansion.

    02

    Asset Quality Management and Credit Cost

    Asset quality showed significant improvement, with Gross Stage 2 plus Gross Stage 3 (GS2+GS3) at 9.72% in Q2, a reduction from 10.26% in the same quarter last year. Stage-2 assets also fell by 7 basis points quarter-on-quarter. The PCR cover increased from 51.4% in Q1 to 53% in Q2. Despite Q2 historically being a challenging quarter with credit cost at 2.2%, management remains confident in achieving its annual credit cost target of 1.7% by leveraging better performance in Q3 and Q4.

    03

    NIM Expansion and Cost of Funds

    Net Interest Margin (NIM) expanded from 6.5% to 7% year-on-year, driven by both lower cost of funds and income level enhancements. The cost of funds moved down by 30 basis points quarter-on-quarter and year-on-year. The company benefited from a favorable rate environment and its significant floating borrowings. While MCLR transmission might not be fully complete, benefits from T-bills and repo borrowings have been fully captured.

    04

    Disbursement Growth Drivers and Segment Performance

    The Wheels business remains a crown jewel, with tractor disbursements growing 41% year-on-year in Q2. Used vehicle disbursements grew 4%, and passenger vehicle disbursements grew 1%. Management anticipates strong H2 growth for PV (12% vs 4% in H1) and Tractor (18-20% in H2, 15% for full year) segments, benefiting from festive demand and GST 2.0. However, the CV segment is not expected to show the same level of enthusiasm.

    05

    Diversification and Rural Housing Finance Turnaround

    The SME business, a key diversification area, grew 12% year-on-year. Fee-based income now stands at 1.4% of average assets. The rural housing finance (HFC) subsidiary has undergone a successful turnaround, with its GS3 now below 3% and Net Stage-3 closer to 1%, making it profitable. An ARC transaction for its stressed portfolio contributed to this improvement. The company plans to accelerate its participation in housing finance, with mortgage identified as an important future growth category.

    06

    Strategic Outlook and Medium-Term Targets

    Mahindra Finance aims to maintain stability in asset quality, keeping GS2+GS3 below 10% across quarters. The company has an aspiration to achieve a minimum 15% CAGR in overall disbursements in the medium term. Management expects Q3 to sustain disbursement growth, with Q4 offering more upsides. The impact of GST-led price reductions on new vehicles and subsequent effects on used vehicles will be closely monitored over the next two quarters.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.