Mahindra & Mahindra Financial Services Limited — Q4 FY26 earnings call

So see, when we look at the vectors for growth here, where we are, as you know, very dominant on is the tractor business, and we have demonstrated that last year. We see that momentum continuing into this year. Of course, since the denominator is quite high, we may not see the same YoY growth of what we demonstrated last year because the base is higher. Other segments is the used vehicle business, which in this environment is also something that we're over-indexing on. As you know, some of the OEMs have called out with the constraints, maybe the inventories are also reducing so the used vehicle business becomes very attractive. It's one of our largest growing businesses. And that's also in a positive, I would say, category of growth. Our passenger vehicle business has grown in quarter 4, quite strong at 15% YoY, and the AUM growth also has been 14%. So that business, we have a dominant position. We are in the top 3 across banks and NBFCs, and we continue to look at that business as a very strong growth enabler. In the CV business, we have made certain shifts in our choice selection. We have moved more to the LCV, SCV segment and found some participation in the HCV segment. And we have also now double-clicked on the used CV business. So we do see this segment as and I'm not giving Q1 commentary of full year of next year. This is more... And finally, on the diversification, our SME and mortgage business are also chugging along pretty well, and that gives us an ability to overall aim for mid-teen growth as we go forward.

Analyst sought clarity on AUM growth acceleration from the current 12%, and management provided segment-wise drivers and overall mid-teen growth target.

Asked by Renish

See, for the full year, we are still at 7.1%, right? And as I commented, what we see as levers for margin, what is structurally moved up, which has helped us move to 7.1%, which I think is a more reasonable number to expect in the next few quarters; is the contribution of fee-based income, right? That has gone up significantly by 30 bps even from last year to this year. And while some of you had questions whether it's one-off, I have been mentioning for the last two, three quarters that we have made certain structural changes in the way in which we book this income and the way we prospect this income. So we think that's one big structural change to keep the NIM profile higher. The second lever, while you would see our interest cost has come down, I did mention that one of the benefit was the rights issue, which will slowly start as the debt equity moves. It will start giving up some of those gains. But what's again structurally shifted there is we have created a very strong treasury team and the way in which we get our incremental CoF. And we see that very, very sharply on a month-on-month basis. I think there's efficiency that we have built there. So I do think that, that will stay for a while. Loan income, which has been range bound as interest has fallen off, you would see our loan income, while we have given up about 10 bps. What's moving over there and what is structurally changing is the composition of tractor and used in some of the asset categories, which will hold us in good stead. So these are the ways in which we have influenced the NIM profile, which will have structural benefits for us in the medium-to-long term. But I would not want to call 7.5% as a new normal. I would think 7.1% with some few bps here and there improvement as possibilities, but not a 7.1% to 7.5%, for sure. That's on the margin commentary.

Analyst questioned if the 7.5% margin was sustainable, and management clarified a more realistic 7.1% with potential for slight improvement, detailing the structural drivers.

Asked by Piran Engineer

Pradeep Agrawal: "So if you look at the quarter 4 of FY26, the interest rates were already elevated in Jan, Feb and March because of the March being March, the year-end pressure on the liquidity as well as cash outflows, along with the gulf prices, I think March rates were much more elevated. After March, we have seen certain spike in the capital market rates in the month of April. And still the uncertainty is ongoing. So it's very difficult to predict the overall change, what kind of incremental CoF and all because compared to March, April is much, you can say, lower.

Analyst inquired about the impact of geopolitical events on incremental cost of funds, and management acknowledged elevated rates and ongoing uncertainty, emphasizing a mixed funding portfolio.

Asked by Piran Engineer

Pradeep Agrawal: "So Kunal, what we have done is that we have basis the current geopolitical situation, we have taken certain macroeconomic variables, which can have an probable impact on the portfolio. And this is that probable impact, we have quantified what could be the gross slippages in my portfolio and after calculating that probable gross slippages, we have kind of worked out this overlay number." Raul Rebello: "Yes. Kunal just the geopolitical, I'm sure you would have got the updates on both, the monsoon, IMD, etc. And we know we have a tractor portfolio, which can get can see some temporary or some kind of a stress. So we just thought it's best to factor in these two, three headwinds in creating the INR 217 crores overlay. I must also mention in the same breath that April 23 days are upon us, 24th actually today. We have not seen any material shift in our collection efficiencies or the April, all the collection days of April are done in terms of we finish it by the 15th-20th of the month. Things are progressing quite well. This is just being prudent. And as I mentioned in the commentary upfront, being prudent is a good posture to take right now and that's the reason and rationale for creating this.

Analyst sought clarification on the specific nature and quantum of the overlay provision, and management explained it as a macro prudential measure against geopolitical and monsoon-related risks, not tied to current visible stress.

Asked by Kunal Shah

Raul Rebello: "I'd invite you to just look at Page number 32 in your panel. It's a reflection of, while we are clearly not in any ways, happy to be delivering a 12.5% ROE. But if you look at where we are coming from, it's from 10% to 12.4% to 12.5%. And, of course, the rights issue would have maybe muted that a bit. I would just remind you that while the group chases an 18% ROE, we did say our first stop would be to get to 15. And if you look at the trend that I request you to look at in Page 32, we have been trending in that direction. Clearly, we are not hosting our flag and saying this is the best we can get. I've shared in the past the levers to expand ROE. And simplistically, ROE is the big lever. Now in ROE, if you tell me what are the levers, NIM is a lever, OPEX is a lever, credit cost is a lever, right? Have we structurally attempted the ROA and is ROA moving in the right direction? Again, if you go back and look at how we have, I mean, today, we have hit 2, but that's been through not any onetime gains here and there. Structurally, the NIM profile has improved 60 bps in a year is a significant improvement. OPEX has been range bound because they've been investing, but I do believe OPEX is capped out now. We'll be in the same range or maybe as operating leverage kicks in, possibly go down a little bit there. And finally, at a credit cost level, we are at the higher end of the spectrum, right? At 1.7, we are at the higher end of the spectrum. So there could be, if things play out well, there could be even ROA expansions on that side. So is 12.5 normal for us? No. We do want to get to a 15 very soon. And the 15 will be, we are trending in the right direction. The 15, as I said, will be the ROE expansion with the levers that I just articulated.

Analyst probed the company's ROE aspirations and the levers to achieve higher teens, prompting management to outline the path to 15% ROE through NIM, OPEX, and credit cost improvements.

Asked by Mayur Parkeria

Raul Rebello: "Yes. So Mayur, again, to keep it sharp, we have to be agile to what's happening around this. We don't trade off growth for risk or margins, as I mentioned. We are across the length and breadth of the country. We can take calls very quickly. We monitor every day, every situation. I think we have to lead with being prudent also. And you would see the reflection of being prudent is what I put out in Page 16 which factors in some of the clouds which are hovering around us, right? It would be not so prudent if we didn't recognize those clouds. And the reflection of us being prudent was in creating a kind of an overlay of INR 217 crores. We are very agile, watching the situation. We all hope touchwood the monsoons are not as per what the forecasts are, if they are positive, we will clearly ramp up. If things settle faster we will clearly ramp up. There are pockets of opportunity even in this environment and that agility is very well baked into our playbook.

Analyst questioned how macro concerns like El Nino, inflation, and fuel prices are factored into the FY27 outlook, and management confirmed prudence through the overlay and agility in response.

Asked by Mayur Parkeria

Raul Rebello: "If you just look at Page Number 6 where I've tried to detail out where we are looking at AI adding to dollar value for our franchise, clearly, the low-hanging fruit was deploying it in collections and in our AI/ML models for underwriting. We are seeing good fruits of those investments right now in terms of early bucket efficiency. I have detailed 25% improvement as well as release of costs in our calls in our call centre because a lot of our calls, pre-due calls, early bucket calls are happening through 8 multilingual BOTs giving us a steep reduction in the otherwise cost that we had in collections. The second use case, which is in the back offices from a processing, I have detailed in serial number 3. We have gone live in 20% of our business and we are seeing through our agentic, which we have called Samur.AI, we are already seeing a very strong benefit in terms of TAT. These are quantifiable benefits here and now in the deploy of our AI toolkits. We are still in the very early stages. As you know, the whole AI for BFSI segment is much more deployable. We have swapped in the AI toolkits where we think the here and now benefits are large. But we are not shying away from making the most sustainable investments where we think the transformational elements of AI can kick in, right, in the whole re-imagination of our loan journeys in terms of looking at AI resetting some of the workflows which will result into workforce, I'm not saying workforce readjustments, but workflow to workforce kind of playbooks getting resets. All of that is part of the mix. So we have swapped in what we think are the here and now as well as long-term factoring of the AI toolkits.

Analyst asked about the scope and investment in AI implementation, and management detailed current benefits in collections, underwriting, and back office, along with future transformational investments.

Asked by Shreya Shivani

Raul Rebello: "Yes. No, thank you, and the reference was important just to get every piece of understanding right. We said growth in the decade at 18% to 20%, that means from '21 to '31 we were citing that period, which means for the next 5 years, we are baked in a 16% to 18% growth. Do we hold to that 16% to 18% growth CAGR for the next 4 to 5 years? Yes. What are the levers to get to that growth? The wheels business will grow at close to market trends. The bigger growth will come in from 2 - 3 categories which are more relatively new. So, we don't look at 20-30% growth there. We look at 30% to 40% growth there in the SME business, the mortgage business, some of the new businesses in leasing and sweating out cross-sell in PL for our existing customers. So, the long answer short is, yes 16% to 18% is the CAGR growth for the medium term.

Analyst sought confirmation on the medium-term growth trajectory, and management reaffirmed a 16-18% CAGR, outlining segment-specific growth drivers.

Asked by Ashish Agarwal