Mahindra and Mahindra Financial Services (Mahindra Finance) on Tuesday logged a 12% year-on-year (y-o-y) fall in the October-December quarter due to a sharp rise in credit costs. However, the company’s profit at Rs 553 crore beat Bloomberg analysts’ estimates of Rs 454 crore. The bottom-line rose 135% quarter-on-quarter (q-o-q).
The company’s credit costs rose 112% y-o-y to Rs 328 crore in the December quarter. However, it fell 48% on a sequential basis. As a proportion of average total assets, credit costs rose to 1.2% from 0.7% a year ago.
According to the investor presentation, the company expects credit costs to settle at 1.5-1.7% by the end of the current fiscal.
The company witnessed a steady improvement in asset quality. Gross stage-3 assets fell to 4% from 5.9% a year ago. The collection efficiency for the quarter is recorded at 95%, similar to the year ago levels.
Net interest income, the difference between interest earned and interest expended, rose 10% y-o-y to Rs 1,815 crore. The gross loan book rose nearly 26% y-o-y to Rs 97,048 crore as on December 31.
The company posted disbursements of Rs 15,436 crore in the December quarter, which aided the growth in loan book.
In a bid to diversify within the vehicle finance book, the company has been investing in used vehicle finance. The company has two partnerships in this segment, namely ‘car&bike’ and ‘CarDekho’. The used vehicle finance mix rose to 13% as on December 2023, from 12% a year ago.
While net interest margins improved by 30 basis points (bps) quarter-on-quarter (q-o-q), it fell 60 bps y-o-y to 6.8% in the December quarter.
The company is banking on its loan partnerships to help grow its business.
So far, it has tied up with State Bank of India, Bank of Baroda and Lendingkart. It has also has tied-up with India Post Payments Bank and Common Service Centres by the ministry of electronics and IT for lead generation. These partnerships will allow the company to expand its distribution and maximise the fee income potential over the next two-to-three years, the company said in the press release.
Also, the company is focusing on data, artificial intelligence, machine learning and analytics to help improve underwriting and asset quality. Many of the company’s initiatives on digital transformation will land in the next two quarters, it said.
“Amidst sustained profitable growth and a strong balance sheet, our capital adequacy remains robust, currently standing at 18.3%. Additionally, we hold a comfortable liquidity position, with a liquidity chest of over 2.5 months,” it said in a press release.