 "Ramesh Iyer, VC & MD, Mahindra Finance")
Mahindra and Mahindra Financial Services (Mahindra Finance) posted 58 per cent rise in net profit to Rs 353 crore for the first quarter of 2023-24 (Q1FY24). Ramesh Iyer, vice-chairman and managing director, tells Manojit Saha, in a telephonic interview, that the non-banking financial company (NBFC) is on track to increase its balance sheet to Rs 1.25 trillion by 2025. Edited excerpts:
During the first quarter, Mahindra Finance said margins were impacted due to change in portfolio mix and increase in interest cost. How much have interest costs gone up by? How has the portfolio mix changed?
There are two things. One is, net interest margin (NIM) coming to 6.8 per cent. We have also started financing Primex (high segment) customers. They come at a slightly lower rate. At the same time, the asset quality of such customers and cost of operations are also lower. Therefore, it is a conscious decision. The second is, past borrowing, which matures on the maturity date and when you start borrowing afresh, they come at a new rate. So, there is an impact of 20 basis points (bps) coming out of the borrowing cost. And, 10-15 bps on account of product mix. About 10-12 per cent of the portfolio comes from Primex.
Do you think borrowing costs will go up further? Do you expect margin pressure, going ahead?
The likely price increase is already factored in. Two quarters from now, we are hopeful that the rates may start coming down slowly. After the harvest, food prices will also come down. So, the pressure should ease. Slow reduction in the rate (borrowing cost) may happen from the third quarter onwards.
Has rising interest rates impacted demand so far?
No. demand is still holding up. If you go to the dealership, even now, there is a waiting period for new vehicles and footfalls are still high. What has also happened, even as interest rates went up, is that original equipment manufacturers (OEMs) have not increased the price of vehicles so much. Also, second-hand vehicle demand is very high. Many people want to buy a vehicle. But if they see that the price is not favourable, and the waiting period is also there, they opt for second-hand vehicles.
Is that the reason why the company wants to accelerate growth in pre-owned vehicles?
Yes that is why… because the demand is very high and yields are also very good. The advantage is that we see over 200,000 contracts maturing every year. Some of them want to sell vehicles and there would be somebody locally who would buy those vehicles. We participate in those transactions.
What kind of growth do you expect in the pre-owned vehicle segment?
We are aiming to take the pre-owned vehicle book to 15 per cent of the overall loan book. It is 10-12 per cent currently.
Disbursement was up 28 per cent year-on-year in Q1. What kind of disbursement growth do you see for the financial year?
We don’t give a forward-looking number. Our strategy is that we wanted to double our balance sheet from Rs 62,000 crore to Rs 1.25 trillion by 2025. We are cruising well on that target with 28 per cent YoY growth. As demand is holding up, we expect the festival season to be buoyant. Clearly, the growth trajectory can be maintained. When elections come up, demand remains buoyant in the rural segment.
Collection efficiencies were 94 per cent in Q1. Is there a further scope to increase it?
For the first time in our history, during the first quarter, we have seen NPAs (non-performing assets) below the March level. Now, you look at three things: The demand is high, which means the customer has money. That is why he is able to bring margin money and buy vehicles. Collection efficiency is holding up at 94 per cent in the first quarter. This is amid extreme climatic conditions, leading to lower economic activity. Third, we have seen a declining trend in NPA. And, Stage 2 loans (underperforming loans with significant increase in credit risk) are holding up at 6.5 per cent. If you put all the four together, I think the situation will be better and credit quality would improve.
