Release Date: April 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mahindra & Mahindra Financial Services Ltd (BOM:532720, Financial) achieved a significant milestone by crossing the INR1 lakh crore mark of assets under management, closing the quarter at INR1,002,597 crore, a 24% year-over-year growth.
- The company reported strong revenue growth of 22% on a quarterly year-over-year basis and 23% on a full-year basis.
- The gross stage 3 (GS3) numbers showed a healthy decrease from 4% in Q3 to 3.4% in Q4, indicating improved asset quality.
- The company has implemented heightened due diligence around customer onboarding, including centralized processes, to mitigate risks of fraud.
- Mahindra & Mahindra Financial Services Ltd (BOM:532720) is actively working on diversifying its liability mix to optimize overall cost of funds.
Negative Points
- The company detected a significant fraud at its Iswal branch involving extreme collusion among 20+ employees, five vehicle dealerships, and some bank employees, leading to INR136 crores of provisions.
- The cost of funds for the quarter year-over-year grew by 30% and on a full-year basis by 40%, impacting net interest margins (NIMs).
- The company's PAT (Profit After Tax) degrew year-over-year by 10% on a quarterly basis and 11% on a full-year basis.
- The tractor segment witnessed a degrowth due to an industry-wide contraction, although the company's market share remained stable.
- The company has revised its ROA (Return on Assets) target from 2.5% to 2.2% for FY25, citing challenges in achieving the original target due to elevated cost of funds.
Q & A Highlights
Q: The core credit cost seems higher than usual seasonality. What drove this increase? Is it related to activist movements in some states?
A: The overall write-off in settlements was INR500 crores less than last year. The increase in Q4 was due to higher settlements from repossessed vehicles sold at good prices. We expect end losses to decline structurally going forward. β Raul Rebello, CEO
Q: There has been good growth in other income. What growth rate do you expect in the next few quarters?
A: We have been focusing on skimming opportunities for other income, including fee-based incomes. This is starting to bear fruit, and we expect structural growth in this area. β Raul Rebello, CEO
Q: Regarding the fraud incident, how frequently are management reviews conducted?
A: Management reviews are conducted monthly, involving the CFO, CRO, and myself. The Izwal branch fraud was detected through a combination of risk-based alerts, operational metrics, and market insights. β Raul Rebello, CEO
Q: What led to the revision of the FY25 ROA target from 2.5% to 2.2%?
A: The major variable was the unexpected increase in the cost of funds. Despite efforts to optimize NII and other income, the cost of funds remained elevated, impacting the original ROA target. β Raul Rebello, CEO
Q: How will the new branch structure impact employee numbers and OpEx?
A: The new branch structure will have limited staff, with many employees covering multiple branches and dealerships. This will not significantly increase OpEx, and we aim for a 10-15 bps reduction in OpEx to average assets. β Raul Rebello, CEO
Q: What is the expected loan growth for FY25, given the recent slowdown in disbursements?
A: We expect Q1 to be muted due to elections and agricultural sentiment. However, a 14-15% disbursement growth, coupled with favorable monsoon predictions, could lead to an 18-20% book growth for the year. β Raul Rebello, CEO
Q: How are you addressing cybersecurity concerns following the recent incident?
A: The incident caused a temporary disruption for four days, but we have three levels of backup and restored full control quickly. There was no material disruption to customers or services. β Raul Rebello, CEO
Q: The collection efficiency in April was lower than last year. Is this a concern?
A: The lower collection efficiency in April was due to election disruptions and a higher number of holidays. We do not see this as a major outlier and expect Q1 to be similar to last year. β Raul Rebello, CEO
Q: Have you received any feedback from the RBI regarding the fraud incident?
A: We have a strong engagement with the RBI and provide regular updates on the fraud investigation. We are committed to addressing any concerns raised by the regulator. β Raul Rebello, CEO
Q: What is the incremental cost of funds currently?
A: The incremental cost of funds is around 8%, and we do not expect significant changes in the short term. We are exploring all avenues to keep the overall cost of funds in check. β Vivek Karve, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
