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Motilal Oswal Report
Mahindra and Mahindra Financial Services Ltd. reported a Q2 FY23 core profit after tax of Rs 5 billion (5% beat), which declined 51% YoY. Reported profit after tax (including extraordinary loss of Rs 5.5 billion) declined 56% YoY, but grew ~101% QoQ to ~Rs 4.5 billion in Q2 FY23.
This was led by a ~70 bps QoQ compression in net interest margin and elevated opex with CIR at ~44% (previous quarter: 40%).
Net total income (reported net interest income) grew 2% YoY to Rs 15.4 billion (6% miss). Operating profit fell 15% YoY to Rs 8.6 billion (13% miss).
Credit costs plunged ~70% QoQ to ~Rs 2 billion (annualised 1.1%) during the quarter.
In the context of the Reserve Bank of India ban on deploying third-party agencies for repossession activities, the management has been engaging with the RBI and sounded reasonably confident that the ban could get revoked by Q4 FY23.
Further, Mahindra Finance employs third-party agencies only for repossessions and a ban would not impact collections. Besides, onboarding ~6,000 off-roll employees (who were predominantly in collections) on its own payroll will mitigate some of the negative impacts from this ban.
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