MAHINDRAANDMAHINDRAFNCLS Q3 FY26 earnings call.
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What the record says.
Mahindra and Mahindra Financial Services delivered a strong Q3 FY26 with visible profitability step-up, reporting ROA of 2.5% for the quarter and 1.9% for 9M FY26. PAT grew 59% sequentially and 76% YoY on 9M basis, driven by 50bps NIM expansion to 7.1% (9M) and fee income improvement from 1.1% to 1.4% of average assets. Asset quality continued stabilization with GS3 at 3.8% (down 14bps sequentially), and GS2+GS3 below 10% for eight consecutive quarters. Credit cost moderated to 1.3% for Q3 with 9M at 1.8%, moving toward the targeted 1.5-1.7% range. The company has pivoted to growth mode post-completion of its Udaan business transformation (95% channel adoption on new tech stack), with Q3 disbursements being the highest ever Q3, led by tractors up 65% YoY. Management targets mid-teens loan book growth, aims to reduce wheels concentration from 88% to 70% by FY30, and targets 15% ROE with 2% ROA as the intermediate milestone. Risk includes competition pressure on yields in declining rate environment and cautious CV growth approach amid fleet consolidation and asset quality concerns.
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Guidance to track
- Management targets mid-teens to high-teens loan book growth as diversification into mortgages and MSME accelerates. Q3 disbursements already showing momentum with highest-ever Q3 performance.
- Company aims to reduce wheels concentration from current ~88% (including MRHFL) to 70% by FY30, with growth coming from mortgages and MSME segments. MRHFL turnaround complete; merger evaluation underway.
- Management reiterates full-year credit cost target of 1.5-1.7% as the sustainable range for the business model, with 9M at 1.8% showing progress toward this band.
- Q3 ROA of 2.5% and 9M ROA of 1.9% demonstrate progression toward 2% ROA target. Management plans to share plans for climbing beyond 2% only after hitting this milestone.
Risks flagged
- Management acknowledges declining interest rate environment will intensify competition, requiring yield pass-throughs. Despite 20bps loan income decline in 9M, fee income expansion of 30bps has more than offset this pressure.
- Analyst raised concerns about large gap between industry CV volume growth and M&M Financial's disbursement growth. Management cited fleet operator aggregation, cost-of-funds disadvantage vs banks, and sector-wide asset quality stress as reasons for cautious participation in new CV segment.
- Management acknowledged that Stage 2 PCR has been on continuous declining trend (currently ~8%), reflecting improved PDs and LGDs. While Stage 3 PCR is maintained at 53% via overlays, any further Stage 2 improvement will reduce provisioning requirements going forward, though this is model-driven rather than discretionary.
- Management noted post-GST and festive demand augmentation has started waning, and some Q3 growth was pent-up demand from September vehicle unavailability. Q4 may not sustain Q3 growth levels, requiring vigilance on incremental market share capture.
Key quotes
- We are seeing and what we would think is a description of this quarter is a visible step up in our profitability for Q3 and 9 months of the financial year.
- We do see capability for us to live up to that commitment of being within that zip code of 1.5 to 1.7.
- It is the right time for us to pivot to growth.
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