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Informist, Monday, Apr. 21, 2025

By Sachi Pandey

MUMBAI - Mahindra & Mahindra Financial Services Ltd. is likely to post a lower bottomline for the March quarter both on a year-on-year and sequential basis due to a rise in provisions. Muted growth in loan disbursals and seasonal softness in collections are also expected to weigh on the lender's profitability, according to analysts.

As per the average of estimates from 12 brokerages, M&M Financial's net profit for Jan-Mar is seen at INR 5.77 billion, down 7% from the same quarter last year and 36% lower on a sequential basis. In Oct-Dec, the company's bottomline was aided by a sharp fall in impairments to just INR 91.4 million from INR 3.28 billion in the third quarter of 2023-24 (Apr-Mar), with credit cost dropping to zero as a percentage of average total assets.

M&M Financial is scheduled to detail its quarterly earnings on Tuesday. Its shares ended 0.1% higher on Monday at INR 275.80 on the National Stock Exchange.

According to Centrum Broking, while the second half of the financial year has historically been strong for auto financiers due to improved collection efficiencies as borrowers' cash flows improve, M&M Financial will likely be the exception in Jan-Mar. The "management has projected an exit credit cost for FY25 of 1.3-1.5%, implying that Q4 (Jan-Mar) is likely to see higher credit cost," Centrum Broking added in its pre-earnings report. The brokerage has a 'reduce' rating on the lender with a target price of INR 263.

While M&M Financial's credit cost dropped to zero in Oct-Dec, thanks to reversals, for the first nine months of FY25, the figure stood at 1.3%. As per JM Financial Institutional Securities Pvt Ltd, the credit cost in Jan-Mar may have risen to around 1.7% "due to its captive business nature and rural focus where collections are impacted". Kotak Institutional Equities expects provisions to surge 74% year-on-year to INR 5.94 billion.

On the business side, the shadow bank informed the exchanges earlier this month that Jan-Mar saw overall disbursement of around INR 154.80 billion, up just 1% from a year ago. Collection efficiency declined to 97% in the quarter from 98% a year ago.

"Growth outlook for MMFS (M&M Financial Services) remains tepid on muted disbursements. While the Used CV (commercial vehicle) portfolio for MMFS is likely to support yields and cost of borrowing has likely peaked out in Q3 (Oct-Dec), we expect NIMs (net interest margins) to remain range-bound in the quarter," Nirmal Bang Equities Pvt Ltd said.

With the Reserve Bank of India in February rolling back higher risk weights for bank loans to non-banks from Apr. 1, analysts see better-rated lenders such as M&M Financial benefitting from an improved cost of borrowing. In Oct-Dec, the company's cost of funds stood at 6.4%.

Adding to cost pressures will be higher operational expenditure, which is seen rising on increased collection efforts to maintain asset quality.

While M&M Financial's profit is seen down in Jan-Mar, net interest income is seen up 12% year-on-year and 6% on quarter at INR 20.27 billion, according to analysts' estimates. Margins, however, are seen under pressure, with analysts predicting a compression of about 20 basis points from 6.6% in Oct-Dec.

Following are the Jan-Mar earnings estimates for Mahindra & Mahindra Financial Services based on reports from 12 brokerage firms in descending order of the estimate of net profit:

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Edited by Vandana Hingorani

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