Mahindra & Mahindra Financial Services Ltd (M&MFIN) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to the Mahindra and Mahindra Financial Services earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing "*" then "0" on your touch-tone phone. Please note that this conference is being recorded. I would like to inform participants that this call is for analysts only. Any participant joining from the media may disconnect the call now. I now hand the conference over to Ms. Urmi Patel, Head - Investor Relations from Mahindra Finance.
Urmi Patel (Mahindra & Mahindra Financial Services Ltd): Thank you, Dorwin. Good evening, everyone. We welcome you all to the Q2 earnings conference call of Mahindra & Mahindra Financial Services Limited. Joining us on call today from management are Mr. Raul Rebello, Managing Director and CEO; Mr. Pradeep Agarwal, Chief Financial Officer, along with other members of our management team. We'll begin today's session with opening remarks from Mr. Rebello, following which we will open the floor for Q&A. The audio recording of this call will be made available on our website shortly after the call ends. Before we begin, I would like to remind you that certain statements made during the course of this call may be forward-looking statements. Such statements are based on expectations and involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. With that, I would now like to hand over the call to our Managing Director and CEO, Mr. Raul Rebello, for his opening remarks. Raul, over to you.
Raul Rebello (Mahindra & Mahindra Financial Services Ltd): Yeah. Thanks, Urmi. Good evening, everyone, and for those of you joining from other time zones, good morning, good afternoon. So, very happy to share with you the quarter results. And I would, as usual, request you to keep the the earnings call document, quarterly results document handy. I will be referring to certain pages on the document, which will be useful for you to refer to as I lay out my commentary. So, to start with, let me say that the entire management team is very encouraged with the way in which Q2 results have panned out.
Raul Rebello (Mahindra & Mahindra Financial Services Ltd): quarter 2 results are a reflection of the many quarters prior to that the operating diligence that the team has been focused on and has resulted in what we call, you know, very steady results from a growth margin as well as a risk stand point. So, if I were to just reflect on on the growth stand point and now please refer to page number 5. You would see that our disbursement growth has grown in a steady clip of 22% and this 22% growth has come in from clearly our core business which is the wheels business as well as growth coming from the diversification agenda that we called out our SME and mortgage business. Looking at asset quality 8.1 GS2 plus GS3 this is pretty much the all time low in terms of our GS2 plus GS3 numbers. And the credit cost has been within the zip codes that we've we've called out between 1.3 to 1.7 our Q2 credit cost is at 1.6%. With the strong growth in disbursements AUM growth of 15% and asset quality being under check as well as our other operating metrics in terms of Opex, etc., being very stable. We have been able to deliver a sound part growth of 55% at 882 crores. Moving to page number 6, I did talk about diversification in the franchise and we are very proud of the core wheels business that we have built over many decades. But as a organization we were very keen to unlock new facets of growth and I'm happy to report that the overall lending AUM which is at 1,56,000 crores, now you have a 20% coming in from the non-wheels and 80% from the wheels. Of course the 20% non-wheels include some amount of the quarterly you know, disbursements or the the book that we build for the trade advance, so that's also added up to the non-wheels business. Overall, but in our growth plans, I did mention we would love to grow between the 16 to 18% zip codes. The core business grew 21% and the non-wheels business at 52% is a healthy sign in that direction. Along with the the wheels business as well as the non-wheels business, the lending business, we have subsidiaries which have been for many years now I would say not operating at their at their most potential manner and we have been working very closely with the subsidiaries to turn them around. I have been talking about the last two quarters how the subs have been very very steadily adding to the overall consol numbers. Happy to know that this quarter also is a step in that direction. MRHSL posted a healthy 35 crores PAT.
Moderator: Ladies and gentlemen, please stay with us. The management line seems to have disconnected. We will reconnect with them.
Moderator: Ladies and gentlemen, we thank you for your patience. We have now reconnected with the management. Over to you, sir.
Raul Rebello (Mahindra & Mahindra Financial Services Ltd): Yeah, apologies for that glitch. I'll just wind back a few maybe few seconds. I was on the page prior to this page. I was I was on the page of our holistic growth coming from various asset categories. Before that, I had just landed the point for those of you who may have missed, the diversification agenda is progressing well. We have a very strong growth in our core business at 21 and other lending business at 52% along with the subsidiaries having very steady growth. I request you now to move your panel to page 8. On page 8 you would see that that growth is very
Raul Rebello (Mahindra & Mahindra Financial Services Ltd): holistic secular growth coming from all asset categories. We have actually the wheels business firing on all cylinders, passenger vehicle at 28%, used business at 15, CBC at 16%, tractor at 13, three-wheeler at 32, SME at 13, and our other businesses at 71%. So growth at 22% is coming from from a very holistic secular contribution from all categories. Moving to asset quality on page nine, fair to say that, you know, we we did have baked in a lot of seasonality in our earlier quarterly number. You would have seen between quarters spikes in terms of our GS3 GS2 numbers as well as credit cost. I think a a fair to say that, you know, with our underwriting risk guard rails as well as the collection discipline, we have turned the corner in terms of the volatility in interquarter GS2 GS3 numbers. For your reference on the top hand right of the page you will see that even up till last year we had a 9 bps increase in the GS3 numbers between Q1 and Q2. We in fact saw a sequential fall in GS3 by 3 bps. As well as GS2 which was a 7 bps decrease. This year is as much as a 17 bps decrease, right? Which is leading to even let's say our credit cost which is which historically saw a spike between Q1 and Q2, last year was 23 bps, is now only a 5 bps increase. So a big credit to the management team from the various functions of underwriting risk as collections. We are we've really turned the corner in terms of interquarter volatility and our credit cost numbers are now very range bound even within the quarter. from a from a capital adequacy standpoint being of nearly fully secured underlying assets at 18% capital adequacy with 16.2 Tier 1 we are very fairly decently capitalized for the next phase of growth. I did mention a couple of quarters ago that with with some of the head winds that we were seeing from the West Asia crisis as well as the El Niño lurking drought drought-related you know, kind of risk risk elements. We thought it prudent to build up our liquidity buffers. So our liquidity buffer is pretty much doubled from last year, if you see in rupee value terms. We have very clearly erred on the side of being extra cautious in terms of liquidity buffers. This does cause a drag in terms of our returns, because they set aside this we we set aside this corpus which doesn't yield and causes a drag. But in the overall scheme of things, we have taken the view to be extra conservative and that's why the liquidity buffer is at these all-time high levels. Moving to the next page which is page number 12 and we have circled certain the final ROA. I did mention our aspiration is to move as a franchise to a 2.2 to 2.5 ROA. I would say that with with the DuPont there are various levers at our end and from a 1.6 last year, we have moved to a 2.2. Sequentially, we have we have fallen and if you see the fall is largely in terms of the loan income. I did allude to the fact that between the two quarters the liquidity buffer creates a denominator effect which is which creates a drag. We also are at on the cusp of or we we are Q1 sees us between Q1 and Q2 sees us create create a very heightened amount of trade advance. Trade advance is the grease for our festive business and that trade advance is at a very high level right now and that doesn't yield. So these are the two factors which are not structural, but more seasonal in nature which causes a compression. We do see ourselves going back in terms of the loan income you know, from the Q2 levels which, in my mind, are at a very at at the absolute base levels. Moving to the next this on the previous page you know, we'll just stay on panel number 13. I've given a final consolidated P&L view for the for for H1, because we are at the end of two quarters. As a franchise, our ROAs are at 2.3% and our PAT has grown 68%. I'll take a couple of minutes more to wind up and then hand it over to question answers. Request you to move to page number page number 18. In our overall scheme of things, the operating model, the efficiencies in the operating model in BFSI clearly has to swap in the AI tool kits. I did share with you the plans of how we are swapping in the AI tool kits from an efficiency standpoint. All our AI investments are metered towards the three fronts
Raul Rebello (Mahindra & Mahindra Financial Services Ltd): one on revenue increase, two, on operations, and three, on collections. Glad to report that if you see the sequential swap-in benefits of the AI toolkits, it is adding material value to our disbursements which are now 1,660, 1,663 crores. On the operations front, 75% of our back office is now fully covered by AI-enabled operation workflows. And on the collections front, our call centers have been pretty much, you know, aided by 12 regional AI vernacular bots, which is giving us both rupee value benefits as well as reduction in terms of error rates, and our call centers being enabled with AI calling resulting in better efficiencies. Finally, moving to page number 20. Urmi, can we move to page 20? Yeah, thanks. We have consistently called out our key priorities for the franchise as we move closer to our F-31 overall goals. We remain consistently focused on these five priorities, which is the core business, defending the core business and ensuring that we continue to be a very meaningful player by growing market share and we are seeing that progress well, all our market share on various wheel businesses are moving in the right direction. Our diversification plans on mortgage, SME, leasing, and fee income are growing well. Our progress on margins has been has been decent. Risk has been, as I mentioned, you know, very stable. And overall, we are swapping in a a model, a resilient model, which includes the new-age toolkits to make sure that our OpEx ratios are well under control. I also must point out, our cost to income, which was earlier above 40%, has now slid to under 37%. This gives us confidence that we're progressing in the right direction. Of course, I need to be balanced in my commentary. We are all aware that certain headwinds have been pertinent to the NBFC BFSI space. The recent one being in terms of the new consultation paper on insurance. While it's early days, it can have a material impact if it is implemented suo moto as as is, but we have been representing and we also know that there are certain representations underway. So, it's too early to quantify those results. But being a being someone who recently took a corporate agency license as well as having a broking arm, the fee-based income was a big part of our, you know, we we talked about increasing from 1% to 1.6% fee-based income. In that, I am not saying the entire 60 bps is insurance, there is a part which is of that 60 bps increase that just happened which has been insurance. We will have to watch and wait and how the final regulation plays out. Having said that, I do believe that as a franchise, we will be able to, you know, kind of, use the various levers at our at our disposal to, you know, to kind of swap in what need to be what need to be swapped in if if and when these regulations come into being. We are also very carefully watching how the drought-related scenarios in the three states and the 282 districts are playing out. Our tractor business is very closely tied to the local economy. We are a very distributed business, as you know, we have 25,000 employees. Many employees are in the collection function, thankfully, all of them are extremely connected to the micromarkets. And we we have a very fair, decent connect with the local micromarkets to influence collections as things pan out. So, with that, I will pause here and open it up to question answers which Pradeep and I will take.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press "*" and "1" on their touchtone telephone. If you wish to remove yourself from the question queue, you may press "*" and "2" Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Shreya Shivani with Nomura. Please go ahead.
Shreya Shivani (Nomura): Yeah. Thank you for the opportunity. I have two questions. The first would be on the first will be on the cost of funds movement. Now on slide 12 that is flat for you all in second quarter sequentially. But with the rate hike that has come through and the excess liquidity that you're holding on to, what kind of trajectory should we expect for the full year FY27? Any guidance on that front would be useful, especially given that majority of your book is fixed asset and the chances of passing on to end customer could be restricted to that level.
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