Mahindra Finance, one of the leading NBFCs in India with an AUM of over Rs. 1.15 lakh crore announced a quarterly results, and they reported a PAT growth of 63% YoY to ₹ 899 crores.
Axis Capital: Q3FY25 – negligible credit costs surprise positively
PV and tractors growing well, focus on premiumization Disbursements picked up (7% YoY/ 25% QoQ) led by strong growth in PV (8% YoY/ 33% QoQ) and tractor (24% YoY/ 59% QoQ). SME (60% YoY/ 7.1% QoQ) is growing on a low base. Pre-owned segment was muted, which was a surprise but the management is strengthening the team to accelerate growth in this segment. In the PV segment, it will continue to look for premiumization and has partnered with M&M for financing new EVs. The management continues to be cautious on the CV segment. AUM growth was steady at 19% YoY/ 2.4% QoQ and SME is beginning to pick up pace (19% YoY/ 2.4% QoQ).
Negligible credit costs on provision write-back
Credit costs was negligible as the company has changed its LGD and PD assumptions on portfolio accrued in Jun’21 (Rs 40 bn). This portfolio has seen better recoveries, resulting in lowering of assumptions which led to provision reversal. Consequently, PCR also declined to 50% (vs 59.5% in Q2FY25). The management highlighted thatthis is a one-time benefit and Q4 will have normalized credit costs (1.4-1.5%). It guided for 1.3-1.5% steady state credit costs. Tractor NPAs improved QoQ, as envisaged. CE at 95% (vs 96% in Q2FY25) was marginally lower and the company has strengthened its collection team and it will remain a key focus area.
NIM improves, focus on improving fee income
Reported NIM at 6.6% (up 10 bps QoQ) benefitted from improving yields (20 bps) on better loan yields and rising fee income. Cost of funds at 6.4% (up 10 bps QoQ) inched up on repricing of liabilities. NIM is likely to remain at similar levels, and the management has guided for ~7% NIM in the medium term. Fee income was up 60% YoY, and the company has launched several partnerships to accelerate fee income
Motilal Oswal: Q3FY25 – Operationally in line; earnings beat aided by provision release
- Mahindra Finance (MMFS)’s 3QFY25 PAT grew ~62% YoY to ~INR9b (~31% beat). NII stood at INR19.1b (in line) and grew ~13% YoY. Other income rose ~60% YoY to ~INR1.9b, driven by healthy fee income
. NIM (calc.) improved ~10bp QoQ to ~6.7%. Credit costs stood at ~INR91m, resulting in annualized credit costs of ~3bp (PQ: ~2.6% and PY: ~1.4%). Credit costs were benign, driven by the ECL provision release of INR4.3b in 3QFY25. Between Mar’21 and Jun’21, there was an addition of ~INR40b to the GS3 reference pool. Mahindra Finance demonstrated much better recoveries in this incremental pool, which resulted in lower LGDs in the ECL model
- Mahindra Finance’s Management shared that disbursements in vehicle finance (particularly PVs and tractors) saw a positive momentum during the quarter, and it guided for mid-to-high-teen loan growth in FY26. We model loan growth of ~17% in FY25 and ~16% loan CAGR over FY24-FY27E.
- Mahindra Finance acknowledged that the macro environment is tough and that more efforts are being put into collections. Despite that, with focused efforts, Mahindra Finance managed to keep its asset quality largely stable with GS3 rising only ~10bp QoQ. It continued to guide for credit costs in the range of ~1.3%-~1.5% in FY25. We estimate a ~29% PAT CAGR over FY24-FY27, with FY27E RoA/RoE of 2.3%/16%. Reiterate BUY with an unchanged TP of INR335 (based on 1.7x Sep’26E BVPS).
