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Informist, Monday, Jul. 21, 2025

MUMBAI – Mahindra & Mahindra Financial Services Ltd. is likely to post a slightly higher net profit for the June quarter on a year-on-year basis despite a seasonal rise in credit costs and deterioration in asset quality. Sequentially, however, the net profit is seen down in single digit. Moderation of loan disbursements and high exposure to the vehicle business, which has been in a slowdown, are also expected to weigh on the lender's profitability, according to analysts.

M&M Financial's net profit for the June quarter is seen at INR 5.37 billion, up 4.6% on year but down 4.7% on a sequential basis, according to the average of estimates from nine brokerages. In the March quarter, the company's bottom line had fallen 9% on year to INR 5.63 billion due to rise in expenditure.

M&M Financial is likely to report higher credit costs both sequentially and on a year-on-year basis. The June quarter earnings were likely hit by seasonal worsening of asset quality, Emkay Global Financial Services said, and added that inching up of credit costs from the March quarter is expected to play out.

In terms of asset quality, the stage-3 assets are seen in the range of 3.8-3.9% and the stage-2 assets are seen in the range of 5.8-5.9% as of Jun. 30, according to provisional operational data disclosed by M&M Financial. Stage-3 assets in non-banking financial companies are loans that are overdue for more than 90 days and stage-2 assets are loans that are overdue by 31-89 days. The company said it continued to enjoy a comfortable liquidity position, with a liquidity chest of over INR 96 billion.

"Vehicle financiers are expected to witness moderation in AUM growth driven by lower disbursement growth, in line with slowing industry auto volume/value growth," JM Financial Institutional Securities Ltd. said in a note. "Mahindra & Mahindra Financial Services has already reported only flat growth on year in disbursements...credit cost for the company is likely to be elevated at approximately 1.8-1.9% on total assets in Apr-Jun."

The company said the overall disbursement in the June quarter was INR 128.00 billion, up 1% from a year ago. Its assets as of Jun. 30 were INR 1.22 trillion, up around 15% from a year ago. Weak vehicle sales during the quarter will add to the woes of rise in credit cost and fall in asset quality, according to analysts.

Moderation in M&M Financial's assets under management reflects an above 90% share of the vehicle finance business, which is slowing down, according to Kotak Institutional Equities. The company's collection efficiency was 95% in the June quarter, marginally higher than 94% a year ago.

The broad trends in the automobile industry remain a challenge for M&M Financial's growth, according to analysts, particularly in the commercial vehicle segment. The June quarter was rather disappointing as wholesale sales volume declined largely across the board. Sales of two wheelers fell over 6% on year, those of passenger vehicles fell 1.4% on year, those of commercial vehicles fell nearly 1%, recent data from the Society of Indian Automobile Manufacturers showed. On the other hand, three-wheeler sales saw a marginal on-year rise, the data showed.

"While volumes in the heavy commercial vehicle segment are declining, the light commercial vehicle segment is performing relatively better," Motilal Oswal Financial Services said in a note. "The entry-level passenger vehicle segment also remains weak, with two-wheelers and tractors being the only segments showing relatively better performance from an overall auto industry standpoint."

M&M Financial's net interest income is seen up 16.1% on year and 7.4% on quarter at INR 20.70 billion, according to analysts' estimates. Margins are seen expanding slightly, with Motilal Oswal Financial Services predicting an expansion of about 15 basis points on quarter to 6.6%. The rise in net interest margin is likely to be driven by a decline in cost of funds, with a fixed-rate vehicle finance book, according to Nirmal Bang Institutional Equities. The net interest margin for the quarter ended March contracted to 6.5% from 7.1% in the year-ago period. However, Kotak Institutional Equities expects the net interest margin to remain unchanged from the previous quarter as lower cost of borrowing is likely to be offset by yield compression, an indication of the company's shift to "lower-yielding leases and loan products."

M&M Financial is scheduled to detail its quarterly earnings Tuesday. At 1246 IST Monday, its shares were up over 1% at INR 262.70 on the National Stock Exchange. The shares have fallen over 1% since the company declared its March quarter earnings on Apr. 22. Of the 18 brokerages tracking the stock, 11 have a 'buy' rating with an average target price of INR 322. Four brokerages have a 'sell' recommendation on the stock and three have a 'hold' rating, reports available with Informist show. 

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

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Cassandra Carvalho

With inputs from Gopika Balasubramanium

Edited by Ashish Shirke

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