Mahindra Finance Q3 Results: Profit Falls 12% On Higher Provisions
The company's standalone net profit fell 12% year-on-year to Rs 552.8 crore for the quarter ended December.
Mahindra & Mahindra Financial Services Ltd.'s third-quarter profit declined on account of higher provisions.
The company's standalone net profit fell 12% year-on-year to Rs 552.8 crore for the quarter ended December, according to a regulatory filing. Analysts polled by Bloomberg had estimated a standalone net profit of Rs 454.5 crore.
Sequentially, the bottom line rose 134%.
Mahindra Financial Services Q3 FY24 Highlights
Total income rises 20.7% to Rs 3,490.42 crore (YoY).
Net profit down 12% at Rs 552.8 crore (Bloomberg estimate: Rs 454.5 crore).
Gross stage-3 assets at 3.9% vs 4.3% (QoQ).
Net stage-3 assets at 1.52% vs 1.71% (QoQ).
The bottom line was weighed down by a twofold rise in provisions during the quarter. Impairment of financial instruments rose 106% year-on-year to Rs 328.4 crore in Q3.
"The company holds provision towards expected credit loss on financial assets as at Dec. 31, 2023 aggregating to Rs 3,655.35 crore (as at March 31, 2023: Rs 3,294.71 crore)," the company said in its exchange filing.
The rise in provisions was on account of a review on expected credit loss model for retail vehicle loans during the quarter. Mahindra Financial Services included "multi-factor macro-economic variables and product classification of loan portfolio", it said.
Provisions against Stage-3 loans remained "prudent" at 62.7%. The non-bank lender's total liquidity buffer at Rs 8,419 crore is "comfortable", with a liquidity chest of over two months, it said in the press release.
Loan accounts worth Rs 449 crore were written off in the reporting quarter. Out of Rs 3,852 crore worth stage-3 assets, the company provided for assets worth Rs 2,416 crore in the December quarter, keeping the coverage ratio at 62.7%.
"Current coverage ratio at 62.5% is ECL-model driven," Raul Rebello, managing director and chief executive officer–designate of M&M Financial Services, said in the analyst call. "Compared to peers, coverage is higher on loss, given default and probability of default... Without model refinement, provisioning would have been higher by Rs 86 crore," he said.
The management expects provisioning coverage to normalise by Q3 FY25. A reduction in credit loss over the past few quarters is expected to reflect in lower loss, given default number going forward, according to the senior management.
The financier's assets under management remained resilient, with the loan book rising by 25.5% year-on-year to Rs 97,048 crore in Q3.
Total disbursements rose 7% year-on-year to Rs 15,436 crore in Q3, with robust growth in automobiles/utility vehicles, followed by growth in cars and pre-owned vehicle-related disbursals. However, the management expects disbursement growth to taper down in the next financial year.
"The disbursements for used vehicles finance have grown 19% year-to-date until December. The used vehicle finance share in disbursements now stands at 17% year-to-date until December, versus 16% for the same period last year," the company said in the release.
In terms of business assets, the company has largest presence in the eastern states of Arunachal Pradesh, Assam, Bihar, Jharkhand, Meghalaya, Mizoram, Odisha, Sikkim, Tripura, and West Bengal. However, in the December quarter, the footprint in this region shrank to 21%, from 23% a year ago. In the northern states, the company's operations rose 32% from 30%.
Its net interest income improved 30 basis points to 6.7% sequentially. The company's pre-provisioning operating profit grew 6% year-on-year to Rs 1,062 crore in the December quarter.
"There has been a steady increase in fee-based income, which is unlocking incremental revenue for us," Rebello said. The management expects other income to grow consistently in the coming quarters.
Mahindra Financial Services reported a 90 bps compression in net interest margin to 6.7% in the quarter under review, due to rise in cost of funds.
"Overall cost of funds at 7.5% currently," Vivek Karve, chief financial officer of M&M Financial Services, said in the analyst call. "We expect incremental cost of borrowing to remain around ballpark figure of Q3...around 8%."
Rebello said that the NIM target has been recaliberated to 7% in FY24 from 7.5% earlier, and the company is "moving decently well towards the target".
In terms of cost of borrowing, the management expects it to remain around the same levels.
With better asset quality in Q3, Mahindra Financial Services also reported an improvement in credit costs to 1.2% on a sequential basis, from 2.4% in the September quarter. The non-bank lender expects the credit cost at 1.5–1.7% for FY24. The collection efficiency stood at 95% in Q3.
The company's capital adequacy ratio stood at 18.3% as of Dec. 31, above the regulatory requirement of 15% for NBFCs. Tier-1 capital adequacy was at 16.5%.
Shares of Mahindra Finance ended 0.3% higher, as compared with a 1% fall in the benchmark Nifty 50 on Tuesday. The results were declared after market hours.
(Corrects an earlier version that misstated the profit)
