Mahindra Finance Q1 Performance Muted Amid Asset Quality Concerns, Says Morgan Stanley

Mahindra Finance Ltd.'s latest quarterly performance has been described as "muted" by Morgan Stanley, with the brokerage highlighting concerns over asset quality and growth prospects.

It pointed out that Mahindra Finance's disbursements fell 18% quarter-on-quarter, a significant drop that was well below the firm's estimate of a 7% year-on-year increase. "AUM growth continued to moderate," the note stated, with gross assets rising by 15% YoY and 2% QoQ, aligning with Morgan Stanley's expectations.

One of the key takeaways from the report was the deterioration in asset quality. The Gross Stage 3 ratio increased to 3.8-3.9%, compared to 3.69% in the previous quarter and 3.56% in the same quarter last year. Similarly, the Gross Stage 2 ratio showed a slight improvement, standing at 5.8-5.9%, down from 6.1% in the first quarter of the previous fiscal.

"We lack data on write-offs and coverage, which are needed to estimate slippages as well as credit costs. However, assuming write-offs were in line with our estimate, slippages are likely to be lower than we expected," Morgan Stanley noted.

The brokerage firm also highlighted concerns about Mahindra Finance's collection efficiency, which stood at 95% for the first quarter of the fiscal 2026, down from 97% in the previous quarter. "Growth and asset quality remain muted; we see downside risks to F2026 PPOP and weak ROA, driving our EW rating over 12 months," the note added.

Morgan Stanley maintained its 'equal-weight' rating on Mahindra Finance, citing the impact of the company's loan mix shift to better-quality segments on loan yields, Return on Assets, and Return on Equity. "We forecast ROA of 2.0% in both F26 and F27, with ROE of 12.5% in F26 and 12.6% in F27," the report said.