New Delhi
Shares of Mahindra & Mahindra Financial Services tumbled more than 11 percent on Monday following the release of disappointing financial results. M&M Financial Services saw a decline of 11.65 percent on the BSE, trading at Rs 245. Centrum Broking, in its research, noted that the company reported unsatisfactory earnings for the second quarter of fiscal year 2023-24. The firm faced two key challenges: a narrowing Net Interest Margin (NIM) due to increasing Cost of Borrowings (CoB), which is a common issue among non-banking financial companies (NBFCs), and a yield compression driven by upgrading to a better customer segment and a higher proportion of interest-free advances in the current quarter. Additionally, the second quarter saw higher credit costs due to increased provisions and write-offs, primarily in the tractor segment, which was affected by erratic monsoon conditions. Operating expenses relative to average assets (2.85 percent) remained above the management’s guidance of 2.5 percent. While the Assets Under Management (AUM) continued to grow robustly, the translation of this growth into profitability remains uncertain, according to Centrum Broking. In a report, Motilal Oswal Financial Services indicated that Mahindra & Mahindra Financial (MMFS) saw a 48 percent year-on-year decline in PAT to Rs 2.35 billion in the second quarter of fiscal year 2023-24, missing expectations by 44 percent. Reported Net Interest Income (NII) increased by 9 percent year-on-year to Rs 16.7 billion (missing expectations by 6 percent), while Pre-Provision Operating Profit (PPoP) also grew by 9 percent year-on-year to Rs 9.4 billion (missing expectations by 10 percent). The annualized credit costs of 2.8 percent (compared to 2.5 percent in the second quarter of fiscal year 2022-23) exceeded expectations and included Rs 3.5 billion in write-offs (compared to Rs 3.1 billion in the first quarter of fiscal year 2023-24). The research noted, We cut our FY24E EPS by 12 percent to factor in higher NIM compression and elevated credit costs in 1HFY24. MMFS had previously managed to reduce volatility in its Net Interest Margin (NIM) and earnings performance by streamlining operations and enhancing risk management. However, the company has now reported two consecutive quarters of NIM volatility and elevated credit costs, which could potentially affect investor confidence in its transformation journey, according to the research.
