M & M Fin. Serv.

Mahindra & Mahindra Financial Services concluded FY26 on a strong note, with Q4 PAT growing 55% to INR 873 crores, and full year PAT up 19% to INR 2,782 crores. Excluding the prudential overlay, Q4 PAT growth would have been 84% (over INR 1,000 crores) and full year PAT growth 30% (over INR 3,000 crores). The company achieved a robust Q4 RoA of 2.4% (2.9% without overlay) and a full year RoA of 2%, up from 1.9% last year. NIM expanded significantly by 101 bps YoY and 60 bps for the full year, driven by strategic portfolio rebalancing and effective treasury management.

Asset quality reached an all-time low, with combined GS2 and GS3 at 8.2%, and GS3 at 3.4%, a reduction of 39 bps QoQ. The Provision Coverage Ratio (PCR) improved to 58.6% from approximately 53% in Q3. A prudential overlay of INR 217 crores was created in Q4, not due to visible stress, but as a proactive measure to cushion against potential downside risks from geopolitical situations, macroeconomic variables, and monsoon-related headwinds. Management stated this overlay is part of overall GS3 provisioning and will be revisited if these headwinds do not materialize.

The company's investments in digital and AI are now business as usual, with 100% of the lending stack for the wheels business live. Close to 50% of total disbursements in FY26 were processed through the Udaan digital stack. Operational efficiencies saw a 40% improvement in Straight-Through Processing (STPs) and loan backoffice approvals becoming 80% faster. AI/ML models contributed to a 25% improvement in early bucket collections, and 8 multilingual BOTs reduced call center costs.

Overall disbursements grew 63% in Q4 and 49% for the full year. Tractor disbursements showed strong momentum, growing 63% in Q4. The SME business, growing at 32% in the core NBFC, has a book of INR 8,000 crores and is targeted for 30-40% growth. The used vehicle business is identified as a key growth driver, and the passenger vehicle segment grew 15% YoY in Q4 with 14% AUM growth. The company aims for mid-teen AUM growth in FY27 and a 16-18% CAGR for the medium term (next 4-5 years).

NIM expansion was significantly influenced by a 30 bps increase in fee-based income and efficient treasury management, which optimized the cost of funds. While the Q4 RoA was 7.5%, management expects a more sustainable RoA of 7.1% with potential for a few basis points improvement in the coming quarters, not 7.5%. The cost of funds saw some benefit from the rights issue, but rates remained elevated in Q4 and spiked in April, leading to ongoing uncertainty. The company has a mixed funding portfolio to manage this.

The company's full year ROE stood at 12.5%. Management has a clear aspiration to reach 15% ROE 'very soon', driven by improvements in NIM, controlled OPEX, and optimized credit costs. To achieve this, the company aims to move to a debt-equity ratio of almost 6:1. The balance sheet remains well capitalized with a Capital Adequacy Ratio of 18.8% and Tier 1 capital at 16.7%, providing a strong foundation for growth.

All subsidiaries demonstrated significant step-up in PAT growth. Mahindra Rural Housing Finance Ltd (MRHFL) reported a PAT of INR 58 crores, a turnaround from a negative performance last year. The Sri Lanka subsidiary contributed INR 14 crores in PAT. The insurance broking company achieved 28% YoY growth, and the Asset Management Company (AMC) turned profitable for the first time, moving into the black.