Summary
Mahindra & Mahindra Financial Services Limited - Q3 FY26 Earnings Call Summary Wednesday, January 28, 2026 6:00 p.m. IST
Event Participants
Executives 3 Pradeep Agrawal (CFO), Raul Rebello (MD & CEO), Sandeep Mandrekar (CBO, Wheels)
Analysts 8 Abhijit Tibrewal, Avinash Singh, Mahrukh Adajania, Mayur Parkeria, Nidhesh, Piran Engineer, Shreya Shivani, Suraj Das, Umang Shah, Viral Shah
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Disbursements | ₹14,000+ crores | +7% YoY, +30% QoQ; highest ever Q3 driven by 65% YoY growth in tractor financing. |
| Loan Assets (AUM) | ₹1.21 lakh crores | +1% QoQ; growth optically lower due to runoff of interest-free trade advances from Q2. |
| GS3 (Gross Stage 3) | 3.8% | -13 bps YoY, -14 bps QoQ; maintained sub-4% for eight consecutive quarters. |
| GS2 + GS3 | 9.2% | -101 bps YoY, -52 bps QoQ; reflects stabilization and improved collection efficiencies. |
| Net Interest Margin (NIM) | 7.5% (Q3) / 7.1% (9M) | +50 bps QoQ; benefited from interest-free trade advance conversion and interest write-backs. |
| Fee & Other Income | 1.4% (of Avg. Assets) | +30 bps YoY; driven by corporate insurance agency license and MIBL dividends. |
| Credit Cost | 1.3% (Q3) / 1.8% (9M) | Improved from 1.8% in Q2; management targets a steady-state range of 1.5% - 1.7%. |
| Return on Assets (ROA) | 2.5% (Q3) / 1.9% (9M) | Step-up toward the 2.0% milestone; Q3 benefited from one-time interest write-backs. |
| Capital Adequacy (Tier 1) | 17.4% | Well-capitalized to support the “pivot to growth” strategy following the rights issue. |
Geographic & Segment Commentary
- Tractors: This segment was the standout performer with 65% YoY disbursement growth, widening the company’s lead as the #1 tractor financier in India. Performance was supported by favorable monsoons and high MSPs for agri-commodities.
- Wheels (PV/CV/3W): Passenger Vehicle (PV) unit growth was healthy, but disbursement value was flat (+1% YoY) due to lower ticket sizes and conservative LTVs. Commercial Vehicle (CV) growth remains cautious as the company avoids aggressive fleet segments to protect margins.
- MSME & Mortgages: MSME AUM reached approximately ₹8,000 crores. The company is evaluating a merger of its 100% housing subsidiary (MRHFL) with the parent to scale the mortgage business more efficiently.
Company-Specific & Strategic Commentary
- Project Udaan Completion: Management confirmed the completion of its business transformation project with 95% channel adoption of the new digital stack. All legacy loan systems have been sunsetted in favor of paperless, AI-enabled onboarding.
- Diversification Pivot: Strategic focus is shifting from a monoline wheels-based lender (88% of book) to a diversified player, targeting a 30% contribution from non-wheels (SME/Mortgages) by FY30.
- ECL Model Refresh: The annual refresh involved moving to a more granular, industry-aligned LGD calculation. Management created a ₹635 crore overlay rather than taking P&L gains from the model’s improved loss estimates.
- Insurance Distribution: The transition to a corporate agency model and 100% ownership of MIBL has turned fee income into a structural ROA lever rather than a tactical one.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Loan Growth | Mid-to-high teens CAGR | Driven by a combination of the core wheels business and scaling SME/Mortgage segments. |
| ROA | 2.0% (Milestone) | Management aims to hit 2.0% sustainably before guiding toward higher targets; long-term goal is 15% ROE. |
| Credit Cost | 1.5% - 1.7% | Expected steady-state range as GS2 and GS3 stocks remain range-bound. |
| Asset Mix | 70% Wheels / 30% Other | Target mix for FY30 to reduce volatility and dependence on the auto cycle. |
Risks & Constraints
| Risk | Context |
|---|---|
| Competitive Intensity | As interest rates decline, banks and NBFCs are aggressively competing on yields, potentially pressuring loan income margins. |
| Rural Sentiment Waning | While Q3 was strong due to GST benefits and festivals, management noted some waning momentum in the first month of Q4. |
| CV Segment Stress | Management highlighted asset quality stress appearing in parts of the CV industry, leading to a more conservative growth stance in this segment. |
Q&A Highlights
Asset Quality & Provisions
- Question: What were the major changes in the ECL model refresh? (Mahrukh Adajania)
- Answer: We moved from a 42-month rolling LGD to a more stable, industry-aligned long-term period. We also increased granularity, moving from 7 to multiple product sub-segments (Pradeep Agrawal).
- Question: Why is Stage 2 PCR declining? (Shreya Shivani)
- Answer: It is a function of improved PDs and LGDs reflected by the model. While we maintained Stage 3 PCR at 53% via overlays, the Stage 2 improvement is a result of underlying asset quality stability (Pradeep Agrawal).
Strategic Initiatives
- Question: Why merge the Housing Finance subsidiary now? (Abhijit Tibrewal)
- Answer: We are evaluating it to eliminate duplication across our 1,400 NBFC and 500 HFC branches. Regulatory harmonisation makes it the right time to see if a unified mortgage playbook is more cost-efficient (Raul Rebello).
- Question: Is the 1.4% fee income sustainable? (Rajamani)
- Answer: Yes. It is not a one-time gain. It reflects the structural benefit of our corporate agency license and regular dividends from MIBL (Raul Rebello).
Growth & Margins
- Question: Is the 7.5% NIM sustainable? (Avinash Singh)
- Answer: No, 7.5% has one-time benefits. The 9-month figure of 7.1% is more reflective of the sustainable trend we are targeting (Raul Rebello).
- Question: Why is CV/CE disbursement lagging industry volumes? (Shreya Shivani)
- Answer: We are balancing growth with risk. Aggregation in the fleet segment makes unit economics difficult for small operators, so we are choosing not to participate in the highest-competition, lowest-margin areas (Raul Rebello).
Key Takeaway
Mahindra Finance delivered a robust Q3 FY26, characterized by its highest-ever Q3 disbursements of over ₹14,000 crores, headlined by a 65% YoY surge in tractor financing. The company reported a visible step-up in profitability with a quarterly ROA of 2.5%, though management noted a sustainable 9-month ROA of 1.9% is more representative. Asset quality has stabilized significantly, with GS3 below 4% for two years and a successful digital transformation via Project Udaan now fully operational. Strategically, the firm is pivoting toward growth and diversification, aiming to increase the non-wheels book to 30% by FY30 while evaluating a merger of its housing unit to scale mortgages. While competitive pricing remains a headwind for NIMs, the expansion of fee income to 1.4% provides a structural buffer. The company remains focused on achieving a 2.0% ROA and a 15% ROE as it leverages its strong Tier 1 capital of 17.4% to capture rural and MSME demand.
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