Key Financial & Operational Performance (Q2 FY27)

Profitability:

  • Reported a Profit After Tax (PAT) of ₹882 crores for Q2 FY27, a growth of 55% Year-on-Year (YoY).
  • For H1 FY27, PAT grew by 68% YoY.
  • Return on Assets (ROA) improved to 2.2% from 1.6% in the previous year, with a medium-term aspiration to reach 2.2%-2.5%.

Growth & Disbursements:

  • Disbursements grew by 22% YoY.
  • Assets Under Management (AUM) grew by 15% YoY to approximately ₹1,56,000 crores.
  • Growth was broad-based across segments: Passenger Vehicles (+28%), Three-Wheelers (+32%), Used Vehicles (+15%), CV/CE (+16%), Tractors (+13%), SME (+13%), and Other Businesses (+71%).

Asset Quality & Credit Cost:

  • Gross Stage 2 + Gross Stage 3 (GS2+GS3) stood at 8.1%, described as an "all-time low".
  • Sequentially, GS3 improved by 3 basis points (bps) and GS2 improved by 17 bps.
  • Credit cost for the quarter was 1.6%, within the company's guided range of 1.3% to 1.7%.
  • The company highlighted reduced inter-quarter volatility in asset quality metrics.
  • An overlay buffer of ₹852 crores was created in previous quarters for potential risks from El Niño and the West Asia crisis; no additional buffer is currently planned.

Diversification Strategy:

  • The non-wheels business (SME, Mortgage, etc.) grew 52% YoY and now constitutes 20% of the total lending AUM, with the core wheels business making up the remaining 80%.
  • The subsidiary, Mahindra Rural Housing Finance Ltd (MRHFL), reported a PAT of ₹35 crores for the quarter.

Capital & Liquidity:

  • Capital Adequacy Ratio is healthy at 18%, with a Tier-1 ratio of 16.2%.
  • The company has consciously doubled its liquidity buffer compared to the previous year as a conservative measure, acknowledging it creates a drag on returns.

Operational Efficiency & Technology:

  • Cost-to-Income ratio improved to below 37% from over 40%.
  • AI integration is a key focus, with ₹1,663 crores of disbursements being "AI-orchestrated" in Q2.
  • 75% of back-office operations are now enabled by AI workflows.
  • 12 regional AI vernacular bots are aiding collection call centers, improving efficiency and reducing error rates.

Strategic Priorities & Guidance

Management reiterated its five key priorities for the franchise: 1) Defending and growing the core wheels business, 2) Diversification into mortgage, SME, leasing, and fee income, 3) Progress on margins, 4) Maintaining stable risk metrics, and 5) Building a resilient operating model with new-age toolkits.

The medium-term guidance remains unchanged: AUM growth of 16%-18%, credit cost of 1.3%-1.7%, and an ROA of 2.2%-2.5%.

Key Risk Factors & Headwinds

Regulatory:

  • A new consultation paper on insurance regulations was cited as a potential material headwind. If implemented in its current form, it could significantly impact the company's fee-based income, which has recently grown from 1% to 1.6% of revenue. The company is engaged in representations regarding the draft.

Macroeconomic:

  • The company is monitoring drought-like conditions in 282 districts across 3 states, which could impact its tractor portfolio and rural collections. Proactive measures include augmented collection efforts and reduced funding in stressed locations.
  • Rising interest rates are putting pressure on the cost of funds. While 45-48% of borrowings are floating rate, the majority of the asset book is fixed-rate, making immediate pass-through challenging. The company plans to price incremental loans higher and utilize PSL sell-downs to manage the impact.

Festive Season & Demand Trends:

  • The first 10 days of Navratri saw commerce that was not as strong as the previous year, which had pent-up demand. The tractor segment was noted as seeing a relatively larger decline. Underlying registration data for H1, however, showed rural and semi-urban growth was marginally higher than urban.

Other Key Updates

Merger of MRHFL:

  • The merger of Mahindra Rural Housing Finance Ltd (MRHFL) into the parent NBFC is on track. The appointed date is 1st April 2027, with an effective date targeted for June-July 2027. Lender approvals have been received, and other regulatory approvals (NCLT, etc.) are in process. The rationale is to simplify distribution, reduce duplication, and participate in the attractive mortgage category long-term.

Co-Lending:

  • Co-lending activities under the new regulatory framework (CLM 1, CLM 2) are still in the integration phase with partner banks and are not yet live. It remains a part of the strategy to participate in the prime lending segment.

Headcount:

  • Headcount increased sequentially after being static for two years, driven by renewed growth plans and the migration of consistent performing off-roll staff to on-roll positions.

Conference Call Participants

Management: Mr. Raul Rebello (Managing Director & CEO), Mr. Pradeep Agrawal (Chief Financial Officer), Ms. Urmi Patel (Head – Investor Relations).