M&M Finance slides to 6-month low, down 11% on disappointing Q2 margins

The company said the margins were impacted by higher borrowing rates coupled with change in portfolio mix in favour of better credit quality customers.

Shares of Mahindra & Mahindra Financial Services (M&M Finance) hit a six-month low of Rs 246.05, as they tanked 11 per cent on the BSE in Monday’s intra-day trade after the company reported 48 per cent decline in profit after tax (PAT) at Rs 235 crore. The Mahindra Group’s non-banking finance company had posted PAT of Rs 448 crore in a year ago quarter.

The stock was trading at its lowest level since April 6, 2023. The average trading volumes at the counter jumped over three-fold so far. A combined 6.4 million equity shares had changed hands on the NSE and BSE till 09:32 AM.

Reported net interest income grew 9 per cent year-on-year (YoY) at Rs 1,674 crore. However, net interest margins (NIM) witnessed a decline of ~30 bps QoQ at 6.5 per cent. The margins were impacted by higher borrowing rates coupled with change in portfolio mix in favour of better credit quality customers, Mahindra Finance said.

Loan book increased sequentially by 8.1 per cent to Rs. 93,723 crore. Asset quality continued to remain steady with gross stage 3 assets at 4.3 per cent and net stage 3 assets at 1.71 per cent.

Q2FY23 witnessed a sharp improvement in both Stage 2 and Stage 3 leading to a provision write-back of Rs 345 crore. Both Stage 2 and Stage 3 have now stabilized at more normalized levels. The provision charge for Q2 FY24 was Rs 276 crore, the company said.

Continued infrastructure activity and gradual uptick in agri led rural demand is expected to keep the growth momentum (guidance at ~20 per cent in FY24E). Guidance of improvement in credit cost at 1.5-1.7 per cent and thus aid RoA remains unchanged and remains watchful, ICICI Securities said in a note.

Until two quarters ago, Mahindra Finance had managed to reduce volatility in its NIM and earnings performance by streamlining operations and enhancing risk management. Mahindra Finance has now reported two consecutive quarters of NIM volatility and elevated credit costs (despite minor improvements in asset quality). Such repeated volatility in NIM and credit costs could affect investor confidence in its transformation journey, according to Motilal Oswal Financial Services.

The brokerage firm believes that Mahindra Finance should see improvements in NIM and a moderation in credit costs in H2FY24.