Analyst Concall
M&M Financial to focus on tractor, used vehicle loans
This story was originally published at 21:49 IST on 28 January 2025
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--M&M Fincl Svcs: Collections remain big priority, sensitising customers
--CONTEXT: M&M Fincl Svcs mgmt's comments in a post-earnings analyst call
--M&M Fincl Svcs: Target credit cost at 1.3-1.5% in FY25
--M&M Fincl Svcs: Aim to keep provisions in range of 20-30 bps FY25
--M&M Fincl Svcs: Don't see provision coverage ratio falling, expect uptick
--M&M Fincl Svcs: Target NIM at 6.50-6.70% for FY25
--M&M Fincl Svcs: Will continue to focus on tractors, used vehicle loans
--M&M Fincl Svcs: Slippages not from one product, spread across segments
--M&M Fincl Svcs: Raising capital on our minds, warming up for tier-I capital
--M&M Fincl Svcs: Used passenger vehicle loans 20% of incremental disbursals
--M&M Fincl Svcs: Provision coverage ratio may go up marginally in Jan-Mar
--M&M Fincl Svcs: Expect better efficiency to moderate operational expenses
--M&M Fincl Svcs: Have not seen sharp fall in commercial vehicle prices
--M&M Fincl Svcs: Recovery of NPA will determine timeline for write-offs
--M&M Fincl Svcs: Want to participate holistically in mortgage business
--M&M Fincl Svcs: Re-configured collection team to be product specific
By Sachi Pandey
MUMBAI – Mahindra & Mahindra Financial Services Ltd. will continue to focus on its core strengths in tractor financing and used vehicle loans, which have driven growth and profitability for the company, the management of the company said in a post-earning analyst call on Tuesday. "We will continue to double-click on tractor which gives us higher NIM (net interest margin) capability," the management said.
The tractor financing business has been a significant contributor to the company's growth, with a 24% on-year increase in tractor sales to INR 19.68 billion in Oct-Dec, the management said. The company plans to leverage its strong relationships with farmers and its deep understanding of the agricultural sector to continue growing its tractor financing business.
By focusing on these two areas, the company aims to drive growth, improve profitability, and reduce its dependence on a single asset category, the management said. This strategy is expected to yield benefits in the long term, driven by its strong brand presence, extensive distribution network, and deep understanding of the agricultural and automotive sectors, the management said.
Commenting on its used passenger vehicle loans, the company said that it accounted for 20% of its incremental disbursals. The company reported a 7% increase in disbursements in Oct-Dec to INR 164.67 billion.
However, the company witnessed a decline in pre-owned vehicle disbursements due to muted demand in light commercial vehicle segment. Despite this, the company aims to increase its participation in the used vehicle market. "We have to work within the constraints and we have in fact augmented the used commercial vehicle team to be able to do a little more of the acquisition that is capable. But our plans are to be participating much higher than where we are right now in this way," the management said.
The company said it has not witnessed a sharp decline in commercial vehicle prices. According to the company, prices have remained relatively stable over the past year, with no significant drops or increases. However, there has been a slight correction in used vehicle prices over the last three to four months, largely due to discounts being offered on new vehicles, but the company's management said there is no cause for concern regarding large price drops at present.
The non-banking lender also plans to expand its presence in the mortgage business, aiming to participate holistically in the segment. However, the company's management declined to provide specific details on its mortgage business plans, saying a longer-range strategic view will be shared at the end of Jan-Mar.
The company also emphasised that its write-off policy remains unchanged, with the timing of write-offs determined by the recovery of non-performing assets. The management added that the company's collection efforts remain a top priority, with a focus on maintaining underwriting standards and addressing early-stage delinquencies.
The company is willing to invest reasonably in collections to maintain its asset quality. "We have reconfigured the collection team to be product specific right now. It is our stated goal to start seeing this number go down as right now it has remained range bound," the management said. The collection efficiency of the company remained stable at 95% as on Dec. 31, consistent with the same quarter of the previous year.
The non-banking lender aims to maintain provisions within a range of 20-30 basis points in 2024-25 and does not expect them to decline, instead it anticipates a marginal uptick. As on Dec. 31, the lender's standalone net non-performing assets ratio was 2.00%, up from 1.59% in the previous quarter. The company has made provisions of INR 34.96 billion towards expected credit loss as at December end, indicating its preparedness to absorb potential losses.
Mahindra and Mahindra Financial Services reported a 16% year-on-year increase in net interest income to INR 20.99 billion for the quarter. Revenue from operations rose 20% to INR 41.43 billion. The company aims to maintain a net interest margin of 6.50-6.70% for the current financial year. To achieve this target, the company is focussed to improve its efficiency to moderate operational expenses. The company is exploring ways to optimise costs and enhance productivity.
The company is also considering options for raising capital, with plans to warm up for tier-I capital. This move is likely aimed at supporting the company's growth plans and maintaining its capital adequacy ratio. As on Dec. 31 the company's capital adequacy ratio was 17.8%.
On Tuesday, shares of the non-bank lender ended 4.7% higher at INR 272.00 on the National Stock Exchange. End
Edited by Ashish Shirke
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