Markets
Mahindra Finance May disbursements healthy; all eyes now on monsoon progress
Summary
- Mahindra Finance has taken multiple initiatives to improve its asset quality metrics, including diversifying product mix and customer base by catering to an affluent rural and semi-urban customer segment
Shares of Mahindra & Mahindra Financial Services Ltd (Mahindra Finance) have been scaling new highs over the past few months. The stock hit a new 52-week high of Rs304 apiece on Monday on the National Stock Exchange.
The company’s monthly operational update for May brings cheer with disbursements rising as much as 39.6% year-on-year (y-o-y) and 9.9% sequentially to Rs4,150 crore. Healthy loan disbursal and stable collections have led to a 3.3% y-o-y increase in the company’s assets under management to Rs85,500 crore.
“May’23 disbursement volumes reported by Mahindra Finance indicate robust demand and strong business volumes contributing to healthy disbursement growth for Mahindra Finance as well as other vehicle financiers," said Motilal Oswal Financial Services’ analysts in a note.
Mahindra Finance also said its stage-3 and stage-2 assets continued to remain range-bound in May compared with March. Note that its gross and net stage-3 assets stood at 4.5% and 1.9%, respectively in March quarter of FY23.
“The asset quality of Mahindra Finance remaining range-bound during the seasonally slower 1Q is seen as a positive," Motilal Oswal’s analysts said. As such, Mahindra Finance’s asset quality metrics have shown a consistent improvement in the past few quarters. For perspective, the gross and net stage-3 assets stood at 15.5% and 7.8% in Q1FY22, respectively. Stage-3 assets are loans that are overdue for more than 90 days.
Under the Vision 2025 plan, Mahindra Finance has taken multiple initiatives to improve its asset quality metrics, including diversifying its product mix and its customer base by catering to an affluent rural and semi-urban customer segment. Under this plan, it intends to maintain its stage-3 assets below 6% in the coming years. With strong collection efficiency and improving asset quality, the management expects credit costs to remain benign going forward.
To be sure, some near-term risks loom. For one, how the monsoon pans out could have a significant impact on the company’s disbursements. Analysts point out that the impact of monsoon on growth and asset quality is a key monitorable.
Also, the trend of net interest margin (NIM) is another factor to monitor in the coming quarters. Analysts expect the metric to compress ahead on account of the increase in cost of funds.
The management expects to maintain NIM at 7.5% in FY24 aided by lending to high-yield segments such as pre-owned vehicles and tractors. In FY23, Mahindra Finance’s NIM stood at 7.6%.
