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Informist, Monday, Oct. 27, 2025

 

By Cassandra Carvalho

 

MUMBAI – Mahindra & Mahindra Financial Services Ltd. is expected to report strong on-year growth in its net profit for the September quarter on the back of higher net interest margin emanating from cost savings due to the interest rate cuts by the Reserve Bank of India so far in 2025. The lender has a fixed rate vehicle loan book and, therefore, the rate cuts will boost margins, according to brokerages tracking the non-banking financial company. However, the vehicle financier is seen reporting weak growth in quarterly disbursements due to subdued demand and deterioration in asset quality amid monsoon-related disruptions.

 

The vehicle financier's net profit is expected to jump 44% on year to INR 5.32 billion in the reporting quarter, according to the average of estimates from 10 brokerages. Sequentially, the net profit is seen largely unchanged, up a mere 0.5%. Nuvama Wealth Management Ltd. has the lowest estimate for the company's net profit for the September quarter at INR 4.30 billion, while Prabhudas Lilladher Pvt. Ltd. has the highest at INR 6.76 billion. The company will detail its September quarter earnings Tuesday.

 

The company's net interest income – the difference between interest earned and expended - for the reporting quarter is expected to have risen 23% on year to INR 22.32 billion, according to the average of estimates from 10 brokerages. The company's net interest income had risen 18% on year to INR 22.85 billion in the June quarter. The vehicle financier had reported a net profit of INR 5.30 billion in the June quarter, up 3% on year. 

 

Most brokerages expect the company's net interest margin to expand both sequentially and on a year-on-year basis in the September quarter owing to reduction in cost of funds accompanied by fixed-rate assets. Anand Rathi Share and Stock Brokers noted that non-banking financial companies are likely to see better margins than banks in the reporting quarter. Nuvama Wealth Management, the brokerage with the lowest estimate for the company's net profit, expects Mahindra & Mahindra Financial to report a net interest margin of 6.84% for the September quarter, up from 6.70% in the previous quarter.

 

Some brokerages also expect a low base effect, lower to stable operating expenses, and fee income to boost the company's profitability. However, Emkay Global Financial Services sees operating expenses remaining elevated as the company "will continue to build on its tech (technology) capability and expand its branch and employee strength." 

 

Most brokerages expect credit cost to inch up further in the reporting quarter. Emkay Global cited lower collection efficiency as the reason, while JM Financial said the auto financier's credit cost would be marginally higher due to higher stress in the non-vehicle finance book. The company estimated its collection efficiency at 96% for the September quarter, unchanged from a year ago. Motilal Oswal estimated credit cost for the company will be about 2.5% in the latest quarter, up from 1.9% in the previous quarter.

 

Growth in assets under management and quarterly disbursements will be in focus, with most brokerages expecting moderation in growth. The broad factors affecting auto financiers this quarter are an unusual monsoon season, a slowdown in infrastructure and industrial production, uncertainty on trade tariffs, and weak capacity utilisation, brokerages said. In its provisional figures for the reporting quarter, the company said its overall disbursements rose 3% on year to INR 135.00 billion. In the June quarter, the non-banking financial company's disbursements had fallen 18% sequentially but risen 1% on year to INR 128.08 billion. Prabhudas Lilladher said the company had medium-term guidance of mid-teen growth in disbursements.

 

Most brokerages expect disbursements to pick up in the second half of 2025-26 (Apr-Mar) due to the Centre's cut in goods and services tax, robust festival season demand, and support from looser monetary policy.

 

ICICI Securities Ltd. said there were cyclical challenges contributing to tepid disbursement growth in the September quarter, along with regional challenges such as the new 'e-Khata' rule in Karnataka. The new rule in Karnataka mandates that builders register for the document per flat before transferring it to buyers. Motilal Oswal also attributed the 'Pitru Paksha' period – in which consumers refrain from major purchases – to lower disbursements in Jul-Sept. 

 

Several brokerages said the wait-and-watch approach of customers ahead of the GST cut postponed auto purchases, with YES Securities noting that the fall in volume ahead of the cut in the goods and services tax was unlikely to be completely reversed in the September quarter.

 

Motilal Oswal said auto sales volumes picked up after the GST cut took effect Sept. 22, due to pent-up demand and the festival season but that the impact would only be visible in the December quarter. The brokerage firm said that the "key monitorable, however, is whether this momentum will sustain over the medium term or fizzle out within the next 3-4 months." Specifically for Mahindra & Mahindra Financial Services, Prabhudas Lilladher said high competition would weigh on the company's disbursements. The brokerage said it prefers stocks of diversified auto financiers to pure-play auto financiers. In Apr-Jun, 44% of loans disbursed by the shadow lender were for vehicles of Mahindra & Mahindra, as per the former's latest investor presentation.

 

As for specific segments, Nirmal Bang Equities Pvt. Ltd. sees demand for passenger vehicles rising due to the GST cut. The brokerage said disbursements in the commercial vehicle and construction equipment segment "remains a drag as the capex (capital expenditure) cycle is yet to pick up." 

 

Prabhudas Lilladher said the financier was being selective in the commercial vehicles segment because of high competition from banks, while it was growing in the light and intermediate commercial vehicle segment, "where pricing is decent". The company's focus is on agriculture and commodity trade, along with rural movement of goods, the brokerage said. YES Securities said demand for passenger vehicles, tractors and two-wheelers will improve, while demand for light commercial vehicles, medium and heavy commercial vehicles, and construction equipment is likely to remain weak.

 

The asset quality of Mahindra & Mahindra Financial Services is seen deteriorating in the reporting quarter, largely due to an unusual monsoon season. Detailing its provisional figures for the September quarter, the shadow lender said stage-3 assets are seen in the range of 3.9% to 4.0% as of Sept. 30 and stage-2 assets are seen in the range of 5.75-5.85%. Stage-3 assets in non-banking financial companies are loans that are overdue for more than 90 days and stage-2 assets are those overdue by 31-89 days.

 

The rise in stage-3 assets would in turn increase the financier's credit costs. Elara Securities expects the firm's gross non-performing asset ratio to increase 12 basis points on year and 15 bps on quarter to 4%. Nuvama expects provisions to rise 25% on year and 33% sequentially to INR 8.8 billion in the reporting quarter. Brokerages said that the management's guidance on asset quality would be a key metric to watch out for.

 

The outlook for the full financial year is mixed, with Elara Securities (India) Pvt. Ltd. saying that the vehicle financier's management is optimistic for the full year. YES Securities (India) Ltd. broadly noted that managements of vehicle finance companies were "currently not of the view that disbursement growth and asset quality levels would improve drastically in H2 FY26 (Oct-Mar)," despite the GST cut. 

 

Shares of M&M Financial have risen over 12% since the company declared its earnings for the June quarter on Jul. 22. On Friday, shares of the company ended 0.02% lower at INR 298.15 on the National Stock Exchange. 

 

Brokerages have a largely positive view on the company's stock, with 11 recommending a 'buy' with an average target price of INR 315 per share. Six brokerages have a 'hold' rating at an average target price of INR 283, while four recommend selling the stock with an average target price of INR 261 a share.

 

Following are the Jul-Sept earnings estimates for Mahindra & Mahindra Financial Services from 10 brokerages in descending order of the estimate of net profit in INR million:

 

Brokerage	Net interest income (in INR million)	Net profit (in INR million)
Prabhudas Lilladher Pvt. Ltd.	21,315	6,763
Elara Securities (India) Pvt. Ltd.	21,102	6,064
Nirmal Bang Equities Pvt. Ltd.	21,972	5,606
Anand Rathi Share and Stock Brokers Ltd.	24,558	5,368
ICICI Securities Ltd.	20,379	5,368
JM Financial Institutional Securities Pvt. Ltd.	23,726	5,050
Motilal Oswal Financial Services Ltd.	21,123	5,024
YES Securities (India) Ltd.	23,982	4,986
Emkay Global Financial Services Ltd.	24,094	4,709
Nuvama Wealth Management Ltd.	20,900	4,300
Average	22,315.10	5,323.80

 

End

 

Edited by Avishek Dutta

 

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