Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong PAT growth of 45% year-on-year, reaching INR 513 crores.
- Continued AUM growth of 23% year-on-year.
- Income growth remains steady at 20% year-on-year.
- Lower credit cost at 1.5% compared to 2.1% in the same quarter last fiscal year.
- Corporate agency license received, enabling fee-based income growth with six active tie-ups already in place.
Negative Points
- Disbursement growth was moderate at 5% year-on-year, impacted by election disruptions, heat waves, and flooding.
- GST numbers increased from 3.4% in Q4 last year to 3.56% in Q1.
- GS2 numbers increased from 5% in Q4 to 6.1%, indicating temporary delays in certain customer and product segments.
- NIMS slightly lower than last quarter and last year's same time due to elevated cost of funds.
- Pre-owned vehicle growth was lower than expected, and tractor segment experienced a degrowth.
Q & A Highlights
Mahindra & Mahindra Financial Services Ltd (BOM:532720, Financial) Q1 FY25 Earnings Call Highlights
Q: What would be a fair estimate of ECL coverage on a steady-state basis for the next four to five quarters?
A: Vivek Karve, CFO: We are guided by a model reflecting past NPA asset behavior. While there is no specific target, we ensure prudent provisions that adequately cover probable losses in the GS3 portfolio. The model is influenced by our collection efforts, which have shown strong results over the last eight quarters.
Q: Can you elaborate on the medium-term aspirations for ROA and the factors influencing it?
A: Raul Rebello, CEO: Our aspirational ROA for FY25 is 2.2%, not 2.5%. We aim to achieve this through improvements in NIM, OpEx, and credit costs. While NIM has been challenging, we are making progress in reducing OpEx and credit costs.
Q: How should we look at forecasting credit costs, considering the changes in ECL and LGD assumptions?
A: Vivek Karve, CFO: We expect LGD ratios to moderate over time due to improved collections. While it's difficult to provide exact numbers, we aim to maintain prudent provisions and expect overall credit costs to improve.
Q: What is the strategy for achieving growth aspirations given the moderate volume growth in Q1?
A: Raul Rebello, CEO: We are focusing on high-value vehicle loans and diversifying into new asset segments like SME. While Q1 growth was moderate, we are confident in our ability to amplify growth in the remaining quarters.
Q: Can you explain the decline in yields despite taking disbursement yield hikes?
A: Raul Rebello, CEO: The decline in yields is partly due to the interest right-back in Q4, which was not present in Q1. We are working on augmenting income through fee-based initiatives and rate transmissions, which will show results in future quarters.
Q: What is the outlook for margins this year?
A: Raul Rebello, CEO: Our medium-term aspiration is to achieve a 7% margin. While current margins are below this level, we are focusing on improving income to average assets and managing cost of funds to reach our target.
Q: How often do you revisit the ECL and LGD models?
A: Vivek Karve, CFO: We refresh the ECL methodology annually, typically in Q3, and update PD and LGD assumptions quarterly. This ensures our models reflect the latest data and collection performance.
Q: What is the incremental cost of borrowing for this quarter?
A: Vivek Karve, CFO: The incremental cost of borrowing remains in the corridor of 7.8% to 8%. We expect this range to continue given the current macroeconomic conditions.
Q: How are you balancing growth, margins, and risk in your business strategy?
A: Raul Rebello, CEO: We are focusing on a balanced approach to growth, margins, and risk. This includes diversifying our asset mix, improving collection efficiency, and maintaining prudent provisioning to ensure sustainable growth.
Q: Can you provide more details on the geographical distribution of your book?
A: Raul Rebello, CEO: We have a significant presence across various geographies, with specific focus areas showing moderate growth. We are continuously monitoring and adjusting our strategies to optimize performance across regions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
