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Nirmal Bang Report
Mahindra and Mahindra Financial Services Ltd. reported a profit after tax of Rs 6.8 billion, which was above our estimate, driven by higher other income and lower provisions. Assets under management growth was strong at 27% YoY on the back of robust growth in disbursements at 53.6 times YoY.
Net interest income at Rs 15.5 billion was flat YoY but increased by 7.3% QoQ as net interest margin contracted. Mahindra Finance's management indicated that NIM was impacted by a change in the product mix and the cost of borrowings inching up while pass-through of interest rate hike is done with a lag. Moreover, the management expects NIM to sustain around the current level going forward as the focus is to build a low-risk portfolio.
Opex was elevated, up by 23% YoY on account of higher technology-related costs, resulting in an increase in cost/income ratio to 45.2% versus 39.5% in Q3 FY23. Provisions came in at Rs 4 million versus Rs 639 million in Q4 FY22. As a result, the profit after tax increased by ~14% YoY to Rs 6.8 billion.
Asset quality witnessed an improvement, with gross stage-III assets declining by 144 bps QoQ to 4.9%. Reported collection efficiency stood at 98% and stage-II assets reduced to 6%. Moreover, the gap between gross non-performing asset and Indian-Accounting standard still remains at ~Rs 12 billion.
We believe that there could be near term risk to growth on account of potential headwinds from a weak monsoon impacting agricultural output and rural incomes as well as demand slowing down due to rising interest rates.
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