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M&M Financial Q3 asset quality worsens; highlights from analyst call

The GNPA levels increased mainly on account of the Commercial vehicle and are not related to any particular geography.

January 31, 2020 / 03:30 PM IST
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Mahindra & Mahindra Financial Services on January 28 reported 14.6 percent year-on-year growth in Q3 profit at Rs 365.3 crore and 13.9 percent YoY rise in net interest income at Rs 1,371.7 crore.

Asset quality during December quarter deteriorated significantly as gross non-performing assets increased to 8.5 percent (against 7.2 percent QoQ) and net NPA jumped to 6.7 percent (from 5.8 percent QoQ).

Provisions and contingencies shot up 78 percent YoY (up 10.9 percent QoQ) to Rs 400.1 crore in Q3FY20.

Disbursements grew 31.1 percent sequentially (down 3.8 percent YoY) to Rs 12,781 crore in quarter ended December 2019, with loan book rising 12.4 percent YoY (up 2.7 percent QoQ) to Rs 65,494 crore.

Here are key highlights from M&M Financial's earnings conference call as compiled by Narnolia Financial Advisors:


Management Participants: Ramesh Iyer - MD, V Ravi - CFO, Dinesh Prajapati - Senior VP Treasury and Corporate Affairs, Vishal Agarwal - Treasury and IR

Overall sentiments from the business continued to remain subdued with hurdles in auto space and with transition to BSVI. The extended monsoon delayed farm cash flow. The buying sentiments are still not picking up.

Business sentiments are week but still customers are willing to discharge their liability which means they have the cash flow which has help them maintain NPA around the Q3FY19 levels.

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The pre owned vehicle segment is gaining the traction which helps to improve NIM.

Management is waiting and seeing how the transition to BSVI takes place and only then they expect volumes to pick up.

In the tractor segment management expect next season to be much better with improvement in farm cash flow and improvement in water level.

Management said it would continue to focus on Asset quality protection and tightening of the processes.

Management said it would look at various states at UP, Bihar, Madhya Pradesh and Gujarat for growth.

The additional provisions were made during the quarter by the company on assessing certain consumers and there were two one timers. The Rs 94 crore provisions were on the certain customers and remaining on the tax demand which the company has negotiated. The extra provisions were from part of stage 3. There were no write off during the quarter. The provisions were largely coming from the south states.

The GNPA levels increased mainly on account of the Commercial vehicle and are not related to any particular geography.

Collection efficiency on a normalized basis excluding the events in certain states like Assam was normal.

Management is continuously reviewing the conditions to review and improve the provision coverage.

The improvement in NIM sequentially was on account of reduction of cost of funds due to maturing of old liability and new liabilities coming in.

Management does not expect asset quality to deteriorate but to improve from the current quarter.

Management is moving into Non Auto loan whereby the existing customers who have repaid the loan for last 12 months or more without default are helped to meet their temporary requirement like healthy. They are of small ticket size and are like of personal loan but collateralized with current security.

The geographic mix of the HFC subsidiary in Maharashtra is 40-45 percent, Tamil Nadu is about 20 percent and rest states will contribute equally.
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