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Business News/ Markets / Mark To Market/  Mahindra Finance’s investors seek revival post 2nd wave hit
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Mahindra Finance’s investors seek revival post 2nd wave hit

The lender’s operations were hit due to curbs with just 40% of its centres open for business during Q1

Mahindra Finance’s investors seek revival post 2nd wave hit. Photo: MintPremium
Mahindra Finance’s investors seek revival post 2nd wave hit. Photo: Mint

Mahindra and Mahindra Financial Services Ltd’s June quarter was a disaster in terms of asset quality and investors showed their displeasure by dragging the stock down nearly 7.5% so far this week. The results were released on Monday.

The non-banking financial company’s bad loans surged to 15.5% of the loan book in the June quarter from 8.9% in the previous quarter. What is more is that stage two assets, which are loans with repayment overdue for more than two months, were 16% of the loan book. In essence, Mahindra Finance’s vulnerable loan pool is at a massive 33%, analysts at Edelweiss Securities Ltd said, adding that this was the worst quarter in a decade for the company.

Braving the blows
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Braving the blows

“The management is confident of a swift recovery (highlighting earlier cycles), but we have our own doubts, given the risk of recurrent covid waves," the analysts wrote in a note.

The increase in stress was expected, as the lender’s portfolio is dominated by vehicle loans, especially in non-urban centres. The second wave of covid-19 hit semi-urban and rural centres hard and much of the quarter was under severe restrictions because of subsequent lockdowns across most states. Thus, Mahindra Finance’s operations were hit, with just 40% of its centres open for business during the quarter. Defaults were bound to surge as collections had dropped to 67% in May.

The management sought to alleviate concerns. Collections have improved since June, the lender said and pointed out that the defaults are largely the fallout of liquidity problems faced by vehicle operators.

Even so, analysts are sceptical about a swift revival. “We remain cautious, considering that the third wave of covid-19 could further hamper overall credit demand and affect the collection mechanism of the company even in the current financial year," an Emkay Global Financial Services Ltd report said.

Analysts have cut their earnings per share estimates for FY22 and expect the lender to underperform its peers. The 20% drop in share price so far this year has meant that the company’s valuations are modest. To its credit, Mahindra Finance has kept a high level of provisioning.

However, the company needs to improve its loan growth in addition to getting a grip on defaults. In the absence of either, the June quarter will not be the last to see pressure on profitability.

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Published: 28 Jul 2021, 10:35 PM IST
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