Mahindra & Mahindra Financial Services Limited (NSE: M&MFIN) Q1 2026 Earnings Call dated Jul. 22, 2025
Corporate Participants:
Unidentified Speaker
Abhijit Tibrewal — Moderator
Raul Ignatius Rebello — Chief Executive Officer
Sandeep Mandrekar — Chief Business Officer
Analysts:
Unidentified Participant
Avinash Singh — Analyst
Kunal Shah — Analyst
Shubhranshu Mishra — Analyst
Shweta Daptardar — Analyst
Piran Engineer — Analyst
Presentation:
operator
Good day and welcome to the Mahindra and Mahindra Financial Services Limited Q1FY26 earnings conference call. This call will be recorded and the recording will be made public by the company pursuant to its regulator obligations. Certain personal information such as your name and organization may be asked during the call.
If you do not wish to disclose, please immediately discontinue this call. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star zero on attached to. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Chibliwal from Motilal Oswal. Please go ahead, sir.
Abhijit Tibrewal — Moderator
Yeah. Thank you. Muskan. Good evening everyone. I’m Abhijit Tibrawal from Motilal Oswal and it is our pleasure to welcome you all to this earnings call. Thank you very much for joining us for the Mahindra Finance call. To discuss the Q1 FY26 earnings. To discuss the company’s earnings, I’m pleased to welcome Mr. Raul Rebello, Managing Director and CEO. Mr. Pradeep Agrawal, Chief Financial Officer and Mr. Sandeep Mandrikar, Chief Business Officer. On behalf of Motila Loswal. We thank the senior management and the investor relations team of Mahindra Finance for giving us this opportunity to host you today. I now invite Mr.
Rebelu for his opening remarks. With that, over to you, sir.
Raul Ignatius Rebello — Chief Executive Officer
Thank you. Good evening everyone and thank you for joining us. Thank you Abhijit and Team Motila Roswell for hosting us. As usual, as I walk you through the Q1 performance. I’d request you to keep the pages of our earnings document handy. I’ll be referring to some specific pages as we go along. So at the outset, as a lender who has largely dominant in the wheels business. The lending environment in Q1 has been a bit of a mixed bag. There’s been momentum in some categories. Especially the ones which have benefited from strong rural cash flows. But they’ve also been and we have witnessed softening in some segments like the entry level passenger vehicles and some of the CV segments.
Bearing that in mind, if you recollect in the last earnings call we had put out a Key Priorities Request you to move to page four and I’ll give you an update on each of our key priorities for Q1. Moving number one on our defending the wheels business, the key highlight for the quarter was a standout growth in the tractor lending business. We saw 21% disbursement growth. By virtue of the disbursement growth we’ve been able to gain market share and we plan this as a big theme for the year to increase our market share and increase growth because we think the tailwinds are very favorable.
Other segments have largely been subdued, a combination of some inherent sluggishness that we saw in certain categories as well as proactively we’ve had to take some prudent underwriting calls to be flattish in certain segments. Second, on margins we have managed to keep our pricing within the yields. It. Was reducing and it is an intense competition with the reducing interest environment. But we’ve managed to keep our yield steady and our margins also have seen some positive movement in the quarter. Too early to comment on the borrowing side on stock, but what I can say is on the incremental cost we are seeing some some I would say positives on that front. Third, on asset quality, our collection performance was quite steady if you recollect. We have always said that our GS2 plus GS3 is we target to be within the 10% range. Q1 came in at 9.7.
You would recollect this is the same number as Q1 last year. On credit cost there’s been a slight there’s been a marginal increase and I have a detailed page on credit cost where I’ll give you the workings and what we’ve seen as reasons which has led to that uptick. Moving to diversification, our SME business did see a decline in disbursements. Nevertheless the book grew at 28%. I’ll give you a commentary on the SME book a little later. The positive story for us is the fee based income. We continue to build on our insurance corporate agency license and we have seen healthy fee income coming.
Update on MRHSL, our mortgage subsidiary which is on a turnaround path. Q1 they did come in at a pad positive. We continue to make edits to the business model and we do see an uptick in terms of the momentum of that subsidiary going forward. Overall on the operating model we did say that we want to build in more resiliency in the operating model One of the key updates that I’d like to share is that we have completely migrated from our in house DEC stack which is the loan management system. We did a complete cutover in the month of June so nearly all of June disbursements happened on the new cloud based LMS stack.
The objective was to have a much more stable backend while allowing a great deal of versatility at the front end for our digital applications. We are very happy to have crossed this major milestone. You know we we also have significant amount of investments being made on the data side and while our AI use cases are in the initial stages, we will at a later stage when the business and control functions use cases of data and specifically AI start becoming material. We’ll provide detailed commentary. Overall our post tax ROI for the quarter was at 1.6. Moving to page 5 quickly which is titled as Highlights Disbursement AUM.
All these numbers that you see on the screen are is what we’ve achieved. Our disbursement is 1% growth. A little flattish for the quarter book at 15 and income at 18. PAT growth was at 3%. I just want to make out some call outs on the pat at 530 crores. There is a point out that I want to include here. This PAT includes a 46 dividend payout from MIBL. This is not a one off. We plan to have this as a recurring item going forward given the current and future cash flows of MIBL. Just as a quick background, you know MIBL is 100% sub.
It has a very consistent income generation distinctive business model from the corporate agency license. Considering it’s a capital light business and there will be a regular cash flow in that entity. We see this dividend as a regular flow into MFSL on a regular basis. There is a 540 crore cash surplus sitting in MIBL even after this 46 crore dividend payout. Moving on to asset quality As I mentioned GS3 plus GSU at 9.7 we did raise. We had a rights issue by which our debt equity ratios have come down significantly. The 3000 crores means that our capital Tire 1 is at 17.9 and we are very well capitalized for growth.
Moving to page seven on disbursements, various segments I did highlight. Tractor was a standout at 21%. Most of the other categories whether it’s passenger vehicles and used passenger vehicles, our disbursements have mimicked the underlying commerce. You would have seen other vehicle finances were there reserves. Pretty much the growths are in line because the underlying commerce isn’t trending in that line. The CD business did have a degrowth. We are calibrating some of the CV businesses specifically keeping in mind the margins that we get in that business and participating in segments which we think from an NBFC standpoint are attractive and where our cost of funds can help us get a reasonable amount of margin.
The SME business you’ve seen kind of a degrowth. I did mention that in the SME business we are in quarter one. We did look at some of the choices on on the distribution. We have rehashed our geography strategy. We have created four divisions. We were doing our Aug rejig with two NSMs and some amount of recalibration. We look at this as a temporary, temporary disbursement kind of regroup. We look forward to the SME business being a very very solid contributor going forward. Let’s move to slide eight. Okay. If you look at our pricing which has come in between Q4 and Q1, clearly the fee investment income has seen some further improvements from even sequentially and YoY also sequentially 1.3 to 1.4 and YoY one to 1.4.
I did mention the MIDL dividend added 14bps. But even though we have seen a good increase in the pre based income, the loan income also has moved up by 10 bits overall from a NIM standpoint. I did comment last time that we do believe our NIMs have bottomed out at six and a half. We do look at abilities to level up on whether they are pricing capabilities or they are cost of fund on stock of cost of fund is not right now playing out. It will play out eventually but we see positive trends there. Let’s move to slide 9.
So this is GS2 and GS3. Well if you look at compared to last year I think that you know I request you to look at the bottom part of the slide. You would See Typically in Q1 there are very large challenges in terms of slippages from the GS2 GS2 GS3 proportion increases with somewhat of disruption of monsoons etc. On a combined basis GS2 plus GS3 had gone up had kind of hiked to by 123bps last year between Q4 and Q1 that equivalent hike was 57bps. Largely the GS2 number has seen a moderation. We do look at having going forward also less intra quarter volatility.
However you would understand our businesses have a decent amount of rural semi urban agriculture customers who have volatile cash flows within that we’re still trying to build a less inter quarter volatility. I think part of that has been addressed in Q1. The underlying GST numbers haven’t spiked as much. We think it’s been reasonably stable with GS3 and GS2 has been an improvement over last year. Moving to slide number 10 so I’d like to spend some time on this slide on credit costs. You know if you recollect in Q3 last year we had. We did see a kind of PCR coverage coming down.
We had explained details of that because of the COVID period. But this year if you look at one of the controllable variables on credit costs as a GF3 stock that has not moved up. What has really moved between last Q1 and this Q1 is the coverage ratio between Q4 and Q1. Last year we had close to a 340bps reduction in PCR cover which would have given a release in provision this year between Q. I mean this year between Q4 of 25 and Q1 this year we’ve seen a 20bps kind of coverage increase. Of course I.
I’ve kind of given you a guidance of where we see the PCR settling at. I would say the underlying credit cost variables whether it is end losses. We have not seen a big hike there as a percentage of portfolio. It is largely the PCR cover which has led to some amount of hike in credit cost. We do understand Q2 also has some rainfall disruptions etc. We will optimize between the quarters also to. To kind of from a management standpoint try to reduce the volatility between quarters Moving to the next slide. Well, the rest are kind of routine slides.
I’ll conclude here and quickly go into coming into question answers. If I were to kind of reflect on the quarter gone by in conclusion I would characterize this quarter performance as a reasonable stable one. We’ve had some key metrics which we’ve managed to keep in a stable level. Clearly there have been concerns on growth which is not difficult to only us but you know, underlying businesses. I would still say that we would be for the remainder of the year will be watching out for opportunities for growth. We do think there are some very profound tailwinds that are attractive as of now.
Number one being, you know the rural businesses specifically because of the distributed monsoons. The good swing, all of you know the tariff swing has been at a record level and MSP is also quite encouraging. So we think overall rural cash flows will hold up well for some of the businesses that we are deeply invested in. We do see positive sentiments rising. Positive sentiments because of favorable policy and finally there is a low inflation environment. All of this should hopefully coupled with the upcoming festival season. This year we see, you know, the festival seasons are all in one month and you know, that’s a big part of our business.
So while the first quarter has been a little bit of a lull, it’s too early in the year for us to kind of call the rest of the year. But we do think that there will be opportunities for growth and we are primed to catch those opportunities for growth. I pause for now and I’ll come back during the Q and A. Thank you. Abhijit, over to you. We can open up the floor.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question may press star and one on the touchdown telephone. If you wish to remove yourself from question queue, Q, Q metres, star and two participants are requested to use answers while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assign. The first question is from the line of Avinash Singh from MK Global. Please go ahead.
Avinash Singh
Good evening, thanks for the opportunity. A few questions on your, you know, venture into housing or rather universal housing approach. So what are the updates? I mean of course we heard you kind of explaining the turnaround in your rural housing subsidiary but the kind of universal housing business that you were kind of, you announced last year that you were doing in that parent entity. So what sort of update there. That’s one second. If we were to look, I mean in terms of the approach, distribution approach followed by your peers and all, I mean your branch of course, I mean you are wheels driven kind of nbfc yet you have been trying to diversify.
But if you look at your branch count, I mean nearly five years, it is kind of a stagnant. So now if you plan to diversify away more from you know, wheels, what sort of your strategy going ahead in terms of, you know, the distribution? Is it going to be once branch led or you are kind of happy with the branch where it is and you can focus on the digital or you know. Thanks.
Raul Ignatius Rebello
Yeah, thank you. So on the MRHSL and the overall housing aspirations stay committed to. We find the housing segment, especially the affordable housing extremely attractive. As I mentioned earlier, we need to have conviction that when we unlock the playbook, you know, whatever is the existing housing playbook needs to be put in order. There’s no point running one shop which is not yet set in order and Start something else. I am very pleased with the way in which MRHF is moving right now. The business model over there as we got in a professional, the CEO he has been seconded as the CEO of that entity.
And I’m seeing some encouraging first you know early signs of that turnaround. The ticket size of that business has moved in the right corridor. The pricing has moved well, we’ve been able to you know create the right amount of provisions and now right sizing of the organization from 9,000 people to close to five and a half thousand people. We are just on the corner of. Once we have full conviction that we have got a good handle on the mortgage playbook is when we will turn on the amplification on that. I will share with you later what’s done there versus what’s done in Mahindra Finance objective was to get the playbook in order and get the operating model us convinced that we have set that in the right direction.
Coming to your second question on the branch has been stagnant. See when we look at the auto lending business as you would recognize the underlying commerce for the vehicle lending business is largely the action points at the dealer. Right. While you would see that our branch number has been a little bit, you know we’ve in fact closed some branches which were, which were not profitable. Our branch covered about 1370 odd. But maybe if you see the number of dealers that we operate in, I mean we have shared that number. We have now crossed 6,000 dealers that we work with.
The objective is being a dominant wheels player. We need to cover the underlying action points of the commerce whether they are new vehicle dealers, used vehicle dealers. We have ensured that our coverage at that point where the rubber meets the road, hits the road is where the customers finally select the vehicle and then we can quickly finance it. So we are increasing our points of connect at the dealerships. We are also working with as we say, you know, some of the rural partnership points where we are able to find customers a branch. We will continue.
We have branches now across the country. They are one of the most well distributed across north, south, east, west. You know we have a pretty much 20% coverage across. Unlike some NBFCs who are skewed towards a certain geography. We think our branch count today is adequate but we will now as we plan to be multi product. Many of our SME businesses are done through some of our vehicle branches. We have created infrastructure for that and our branches also have been reorganized with a branch head and a cross sell desk at branches to make sure that the branches are active service and service and sales points also.
Yeah.
Unidentified Speaker
And quick sort of one more if I may, allowed on CV side, I mean of course there’s a sharp decline in dispersal. I mean, of course the market is tough. But can you share, I mean your assessment, I mean how kind of, you know, indoor qualitative or quantitative assessment how the market has been, you know, in the new CV financing, how the market has grown or shrunk and if at all, I mean you have applied certain strategies, certain geography where you have kind of, you know, see that market share for whatever, you know, underlying concerns.
And also if you can just provide some more color on that CV financing market.
Raul Ignatius Rebello
So I just to get it right, you’re talking about CV or pv. Okay. See, were never a very large player in the used CV business. Our CV business is largely in the LCV category and some amount of business that we were doing for the fleet operators, where we have seeded ground is where we think, as you know, and I’m sure you’d have heard bank commentary, many banks are chasing the fleet operators and the pricing for that is really not attractive from an NBFC’s balance sheet standpoint. So we have actively stayed out some of the fleet operators in the MNHCV segment.
What we continue to grow is in the SCV LCV and some of the ICV in the buses segment where the pricing capability is decent as well. As we have been able to wrap our heads around the margin and risk participation choices that we have, I don’t think the underlying, the kind of tailwinds have been too exciting for the Seavi business, you would have seen it struggle for quite some time now. There are certain challenges, maybe in the mining segment, in the overall price discovery for new fleet addition or new purchases that are happening. But if I were to be encouraged by some segments, wherever we feel that the LCVs or the SCVs are being used for, let’s say agri, commodity trade or rural movement, goods movement, etc.
That uptake, we will be in a good advantageous situation to capture some of that momentum.
Avinash Singh
Okay, thank you.
Raul Ignatius Rebello
On the earlier question on a branch, I just want to last minute, one of our biggest branches is the mobile app. Now we are able to do a lot of acquisition and transactions on the app itself and we see that also as going forward, a good acquisition too. Yeah, thanks.
operator
Thank you. The next question is from the line of Nishtin Chavati from Kotak. Please go ahead.
Unidentified Participant
Yeah, hi, thanks for taking my question. You know, I was just wondering, looking at the momentum in first quarter, you know, what kind of growth, you know, do we really pen down for the year and maybe over the medium term as well. And in that backdrop post the recent rights issue. How do we sort of expect to scale up to a mid teen kind of an roe?
Raul Ignatius Rebello
Thanks Christian. So I think it’s a little early in the year to give a full year guidance on growth. Fair to say that the first quarter was quite muted for us and you would have seen it for other folks. Also, do we think the Q1 is the same texture color for the rest of the year? Definitely not. As I said, there are good enough tailwinds to believe that we can turn around and we remain optimistic with some of the inherent attractiveness of the sector. We would, you know, from I’m not talking about FY26 you’d have heard us say earlier.
And that’s why the rights issue because we do believe we need to equip the organization with gunpowder for growth. It is important for us to at least target a mid teen growth whether it’s a disbursement growth which will then lead to a booker which will lead into earnings growth, et cetera, et cetera. I think we are very keen that the organization has the ability to participate in underlying segments that can mimic that kind of growth. Yes, the wheels business will continue. Some of the segments in the wheels business are seeing prolonged stress like the, you know, the entry level car segment is seeing some stress for quite some period of time because of the buying of the, you know, let’s say the middle income households are seriously not either the prices of the vehicles are too high or there is an earning pressure.
So there are challenges there. I don’t want to discount that pressure but we at least have identified certain segments which we think will give us the capability to participate in growth so that we get back to that mid teen disbursement growth and hopefully a book growth which will also keep up with this.
Unidentified Participant
But would you look at the inorganic route in terms of gold or housing or any of these entities?
Raul Ignatius Rebello
Gold? Not for now. It’s a heavy operational business and takes time. Small ticket now. It’s very attractive but yeah, there is an operational intensity to it. As I said, you know our participation continues our asset categories. Just to remind everyone, while we’re dominant in wheels, we have created some attractive positioning in the SME lab business, supply chain finance bill discounting machinery loans. We are increasing our personal loans in the existing 11 million customers we have serviced to date as well as the M and M customer segment. We are participating in the leasing business. We are really really looking at over indexing on fee based income through distribution and mortgages.
I did mention earlier the playbook will get refined. These are the categories which we think have inherent capabilities to give us that mid teen growth in the mid to longer.
Unidentified Participant
And I know you mentioned you know in the opening comments, you know the reason for slowdown in this segment but I’m not sure if I really kind of you know caught it on the SME side I’m referring to.
Raul Ignatius Rebello
I would just ask you to read it as a Q1. We had a rejig in the org structure. We went into a four zone structure, a two NSM structure. Some of the you know choices to make LAP over index on LAP and you know takes time in these geographies. So we had to move some of the geographies. It’s like a choices on the breadth and depth. Look at it as a temporary aug rejig which has led to this. Not a posturing on our growth ambitions.
Unidentified Participant
Sure. And just two tiny questions. One is you know do we see the fee run rate sustaining and you know any specific reason why you are kind of ramping on ramping up on fixed deposits at this point of time? Thank you.
Raul Ignatius Rebello
Fee and Facebook. I’ll discriminate between the two. Fee based income definitely is. We think we’re over indexed even now and there are avenues for us to get there’s headroom enough for us to get more deeper on fee based income on fd. I don’t think you will see us muscling ahead with in terms of a liability mix fds they will pretty much there are more attractive instruments. We just wanted to kind of diversify the liability mix. I think we have reached a decent point and we will only look at FDS going forward if we do believe that there is a cross sell upsell on the FDA book.
Also, you know let’s say in Q1 of course the rates were going down. We passed on the rates but we managed to get some momentum in the early parts of Q1. Otherwise the FDA, the FDA as a composition will be looked at also as a cost of fund instrument and a diversification of liability instruments.
Unidentified Participant
Got it. Perfect. Thank you very much. Those were all my questions. All the best.
Raul Ignatius Rebello
Thanks Nishi.
operator
Thank you. The next question is from the line of Maharuka from Nuama Wealth. Please go ahead.
Unidentified Participant
My first question, Sorry. So in terms of Nishin’s question on dispersal growth, so 15% is the medium term target but by the end of the year what is the visibility because it’s slow down for the entire sector as such. Right. It’s not necessarily an MMS specific thing.
Raul Ignatius Rebello
Yes, thanks. I would be more keen to not give very immediate guidance. The midterm guidance. Yes. The aspiration is to be at a mid teen growth. We do take into stride temporary hiccups and of course the wheels business is going through a certain amount of challenges on the entry level PV CV for a I would say prolonged period. But thankfully we do have in our arsenal the used business as well as tractor which is seeing some uptick. So we will have to navigate within these constraints. We still are a dominant wheels player. I would say early in the year to give a full year guidance and I would refrain from doing that.
But our company definitely from medium term and that’s why the rights issue also to make sure that we are able to catch any kind of opportunities for growth we would like to quickly have the opportunity to attach our sales where those wins are going.
Unidentified Participant
Got it. And in terms of cost of funds, you did comment about it but it appears that the on book cost of funds seems to be rising. Right. As in the marginal may have come down at least from the balance sheet numbers. That’s how it looks marginally. And your yield also is increasing. You’ve grown tractors. But when other segments start growing and the comes up a bit, how will margins behave in the next 4, 5 quarters? When will we start seeing a correction in actual average cost of funds?
Raul Ignatius Rebello
A couple of you know, variables that we can, you know, kind of influence overall. Nims, I did mention that I don’t think being in the skin of an NBSA and especially us we can go below 6.5. It will be extremely challenging on our ROA aspirations. So quarter one is a good. I think at least we think that we have moved in the right direction. The variables that we are influencing right now is on the participation of. I did mention we did a lot of the prime segment which I think we have reached at the optimum level.
I don’t think our incremental sourcing will create any stress on our pricing IRR for the future. We have managed to have very strong underwriting now playbooks to make sure that even in the near prime customers are able to onboard that with the right risk based pricing to protect our overall pricing. We are seeing some early good trends on the incremental cough on a quarter on quarter basis. Our treasury teams have managed to leverage the priority sector book very well and we continue because of our increased tractor business we will still Have a lot of PSL underlying good PSL assets to offload either through on lending or through centralization to keep the cost of funds at a decent level and fee based income.
I didn’t mention there is headroom for improvement. So there are variables in the overall NIM to move it to a higher corridor as we get back on growth. Yes, you’re right. What is going to play out is the competition intensity. Banks are being extremely competitive. Vehicle as a category is getting intimidated by mainstream banks. But we do have our moats in terms of. I didn’t mention we participated in 6,000 dealerships. We are very relevant to that community. We have a very strong engagement built in the micro markets we operate at. So I do think we have reasonable capabilities to protect NIMs from where they are and in fact have aspirations to go from there.
Unidentified Participant
Hi, so I have to follow. I have two other questions. One is that now this is it on capital, right. There are no plans to raise anything more. Right, that’s one. And the next is that you had. You know, people have been talking about a slowdown and deterioration since first fourth quarter and I know that first quarter is seasonal but in terms of the structural variables that you would be monitoring, you think that slowdown has accelerated or it’s stable.
Raul Ignatius Rebello
I think I see us only moving up from now. You would also see the, I think the high frequency data points which come in in our mind and we get a very good pulse check from the we. In fact the senior management was on the road for the last month meeting covered about 450 dealers. We do see a shift in the momentum. I think if you’ve seen the underlying tractor growth has been 8% plus in Q1 this year. I do see us at the bottom of the, of the kind of levels that we have reached.
There should be positives from here on at least. We do see those, we do see those trends and we would hope to capitalize from an uptick from here on and capital raise. We are I think very, very well capitalized. It wouldn’t be prudent for us especially now. And you know we are 95% plus secured businesses. Right. So we did want to keep enough of, you know, equip ourselves well enough to equip ourselves for high growth. I think we are very well capitalized at a debt equity of 4.75 to 1. It’s a very, very, very decent level.
Unidentified Participant
Perfect. Thank you so much.
operator
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah, thanks. For taking the question. So firstly maybe sorry coming back on margin part and yields in particular can understand that incremental disbursements towards sector is leading to increase in yield. But if you can indicate in terms of the rate actions which you would have taken across the product categories with this 100 basis points of just to gauge in terms of whether there could be pressure on yields because I think cost of borrowing benefit is flowing in only gradually for us.
Raul Ignatius Rebello
So see Kunal, at least some of the segments that we operate in are not extremely price sensitive the near to prime customer segments etc. I think as an NBFC you don’t win on rates, you win on time to credit, being quick to decisions and being at the heart of the where the action is. So NBFCs usually have to ace that game. Thankfully with our very high distribution in these markets and some of the toolkits that we have employed, you know we have moved to a Salesforce Los and a Pin1 LMS, the ability for us to use the Bres etc.
Get Quick Decisions out, do some started some risk based pricing etc. So I don’t see us hazarding. There shouldn’t be a hazard to our pricing going forward. Yes, the intensity and competition will be there. The PV business I did mention some of the very very super prime customers we have taken an evaluation of how much do we swap that in the last two three years have seen a phenomenal growth in the premiumization of SUVs. We did want to participate there. That has had some amount of downsides in the names and the pricing but we have reached at a level where we calibrate how much of that comes in right now to protect for overall NIMs.
So yeah, that’s the kind of guidance on how we plan to participate and not let pricing any inefficiencies creep in. We do believe we’ll be able to largely hold pricing in a range which is favorable for our NIMs and ROAs.
Kunal Shah
Okay, okay. And secondly with respect to credit cost, so I think that Vector has done relatively well with respect to the volatility in 1Q and given the tough operating conditions still managed well but generally like say 2Q. Also last year we saw sharp rise in GS2 GS3 and despite maintaining the coverage we saw a much higher credit cost in Q2 compared to that of first quarter. Any early indicators with respect to delinquency trends? Given the tough macro, are you expecting that maybe there could be further catch up on GS2 GS3 in 2Q or maybe we are confident of still managing it at less than 10 odd percent and any credit cost guidance that you would want to give given where we are in the first quarter.
Sukumo a little early in Q2.
Raul Ignatius Rebello
Yes, Q2 if you look at it traditionally it’s always been the last three years. Also we have spiked heavily. We are looking at over managing it this quarter. But there are some inherent challenges which sometimes pop up. It’s finally the collection teams have to be on the job day in and day out and that’s what we are on the job for that I don’t want to give a Q2 guidance exactly on credit cost. I think what we have provided is from a full year basis we would like to operate in the 1.3 to 1.7 last year more than 1.3 to 1.5.
Think of it like we would want the credit cost not to go more than 1.7. And yes, GS3 +GS2 one of the at least management actions is to keep that below 10. There could be some quarters where this goes marginally above like last quarter in Q2 we saw it going breaching a bit more than 10. We have from a management standpoint we have reorchestrated our collection offices. We have, you know, much sharper vertical wise collection teams because Q2 used to see tractor go out crazily. Now we have segment wise collection team so we have a tractor collection team etc.
Etc. We are trying to optimize within the constraints that are there. It’s not an extremely benign cycle. There are challenges, there are sectors and pockets which have disruptions and we know the levers that we can implement and the collections. Finally an NBFC has to over index on collection rigor and that’s what capabilities we have been building for some time which should start bearing some fruit now.
Kunal Shah
Okay, got it. And lastly if I may ask maybe with respect to declining the number of employees but still we are seeing a higher employee cost both on a sequential as well as on a quarter on quarter basis. So if you can explain maybe what led to almost like 1,700 employees decline during the quarter and anything on the cost side.
Raul Ignatius Rebello
Yeah, I think if you look at it on a yoy basis it’s 11%. Yeah, there will always be some. I mean Q1Q I think there’s a reduction on a yoy. It’s 11% employee cost. Finally. You know there is, there are if you be extremely cute on employee cost et cetera, it might have a bearing on finally collections need to be maintained Account has been largely, you know, stable. There’s been in fact reductions over the last couple of years. There is an interplay between off roll and on roll. I’ll invite Pradeep here to kind of offer some commentary.
Pradeep, any overall commentary? Yes. So actually in Q1 we have kind of moved a certain amount, certain kind of count of people from the on road to off road. And that’s why I think employee count is looking lower in Q1. Otherwise our overall employee count is flat quarter on quarter basis.
Kunal Shah
Okay, got it, got it. That helps. Yeah, thank you.
Raul Ignatius Rebello
Sandeep is adding some comments.
Sandeep Mandrekar
Kunal, just to add to a couple of questions. One in terms of how do we look at the pricing given the fact that there are some changes which are happening? I think product mix is something which is also going to help to this. If you look at the push that we are working on currently is going to be also on our refinance book where we are looking at increasing the contribution of the refinance book book in our total scheme of disbursements which will add to the NIMS and the margins that we look at on the fresh disbursement.
And secondly in terms of the collections, surely with a good monsoon which is well distributed, the expectation of a cash flow seems to be on the higher side and we would like to over index and see how we can capitalize on what comes out of it, on the positivity of the market.
Kunal Shah
Sure. Okay, thanks. Thanks.
operator
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit your question to two question per participant. Do you have a follow up question? We request you to rejoin the queue. The next question is from the line of furniture from JP Morgan. Please go ahead.
Unidentified Participant
Hi, thanks for taking my question first one, coming again back to your market share loss in the CD you have seen a 12% decline in disbursements and LCD registrations have been flat year over year for the industry. So what is leading to you calibrating that growth over here? Are you seeing any risks build up in the segment which is driving that caution? So that’s the first question and second is your write off levels have risen 40% year over year. So how do you see this number moving for rest of FY26 versus the 1500 crore number you had for FY25? Thank you.
Raul Ignatius Rebello
Yeah. So on the CV business, see as I mentioned that if I look at the market share in the SCV LCV business largely we are, we are holding our market share there, especially considering we do have some synergy with the M and M dominance that they have in the CV business there. So we’re not seeing any loss of market share there. As I mentioned in the M and a CB business, the construction equipment business, which is largely moving now to fleet operators, there are some margin pressures over there. It doesn’t make sense for us to compete with mainstream banks with the pricing competitiveness that we have against them.
Also some of the MNHCV CV segments which are typically the single operators, et cetera. There is a risk, there are of course ability for us to do that business, but the risk is possibly now not in our appetite. So we have consciously stayed away from some of that. So in a market where the CV business is anyway flattish, considering we are making certain participation choices, there will be degrowth. Right. It is to kind of make sure that we finally have an ROA segment wise ROA aspiration in each of the segments that we operate in. That’s from the CV business.
Your second question.
Unidentified Participant
One thing on that. So is it more of a margin call than a risk call?
Raul Ignatius Rebello
Yeah, I would say more of a margin than a risk. The write offs I would request you to look at, I mean if you look at absolute values they kind of get misleading because you’re a growing portfolio. A 1 lakh AUM versus 1 lakh 20. If you look at the write off as a percentage of opening assets or the average assets, you will see that is largely in the stable zone. Right. Of course we are not don’t want that to keep that pace. We would look at the write off numbers being lower. But right now I would just urge absolute, maybe a little misleading compared to you know, the slippage numbers which are a little more reflective.
Unidentified Participant
Okay, understood. No, so the reason for that question is I think you had seen a steady decline in write offs for the last three. As I understand the base was quite high. So that’s why I want to get a sense of FY26.
Raul Ignatius Rebello
Yeah, I think since all of this forms part of the credit cost, you know, one should look at the aspiration of being within that 1.7 headroom. We will optimize within that.
Unidentified Participant
Thank you. Thanks a lot.
operator
Thank you. The next question is from the line of Shivranshu Mishra from Philip Capital. Please go ahead.
Shubhranshu Mishra
Hi Rahul. Good evening. Two or three questions. The first one is how do we get deeper into the wallet share of existing customers that we have through our own products, through co lending or through non credit products like insurance Mutual funds, any other distribution NPIN product. What is the roadmap for that in the next two? The second is that you did agree to volatility of infants due to agri customers. How do we understand this volatility and how do we attack this in terms of taking more non angry and even if we cater to agri, how do we help get our credit cost more predictable from the same pool of customers?
Raul Ignatius Rebello
Thanks Subranshu. If I heard your question one was on existing customers higher cross sell and volatility. Right. Because your voice was so before. Yeah, let me take the first question. On existing customers we have a very you know targeted what we call a number called as a product per customer which we track and thankfully we are well endowed as an nbfc we have an, we have a fixed deposit license, we have a corporate agency license, we have a mutual fund company and of course we’d like to kind of do some distribution there. So there is capability for us to be more relatable to our existing customers because of the products that we have.
I have not put this out and at some point in time we’ll put it out. Our product per customer, what we track is progressing in a very healthy trend. And now that we have a branch structure with a branch head and a cross sell desk at every branch, the product per customer numbers are only seeing an increased fill. You’re right. From an NBFC standpoint once you acquire a customer we need to clearly monetize better and that is a key metric that we all track. Secondly on volatility and you alluded to agri customers volatility being a semi urban rural player I think what the company has done well is immerse itself in the micro markets.
You know we operate out of more than 12 and a half thousand pin codes in the country. Thankfully now we’ve been able to use some of the toolkits to ingest a lot of the micro market data into our underwriting scorecards to take calls. So there is an inherent volatility because customers have not like you and me, salaried incomes. There are bunch of our customers, most of them are self employed agriculturists and for a player like us it’s important one to understand the cash flows and schedule our loans. Let’s say for a tractor customer when there is, when there is underlying cash flows to pay those emi.
So whether it’s an EMI or it’s a quarterly installment or a half yearly installment we have a, I wouldn’t say we have optimized on that but we are moving in the right direction and I think what you can gain and gauge from that is the inter quarter volatility that we have started to reduce and there is scope further to reduce that. But managing volatility from a collection standpoint, from a scheduling of EMI standpoint, from a deep immersion into the rural micro markets to understand, you know, the customers and make sure that our loans are loan sizes are mimicking the, you know, the EMI capability, repayment, FOIA, etc.
Etc. That’s all something which we have improved vastly with the underwriting team coming in with the risk team doing the risk scorecarding, etc. Etc.
Shubhranshu Mishra
Right. Can I squeeze in one last question? Are we looking at any co lending arrangements in products where we do not have capability right now with large PSC bands or private bank or any housing finance companies or any NBFCs.
Raul Ignatius Rebello
On the vehicle lending business? Largely we are a junior partner, you know, we have a co lending partnership with a bank. We are streamlining that. There is no paranoia to grow rapidly. We have to put the systems processes in place before we get growth up. We do a little bit of senior balance sheet partner play for some of the MSME business. Very small right now, but nothing material to talk about. Right. Sure.
Shubhranshu Mishra
Thanks. Best of luck.
Raul Ignatius Rebello
Thank you.
operator
Thank you. The next question is from the line of Shweta from Ilara Capital. Please go ahead.
Shweta Daptardar
Thank you sir for the opportunity. My question is on how do we perceive the growth levers now that the business continues to remain slightly under persistent stress. So if I look at SME, which is 5% of your mix and pretty sizable enough to make sort of a different ahead. So what do you consider as your business mode in SME business? You know, whether it is what is your niche customer profile like or do you have a moat on price discovery or ticket size. I understand you mentioned that you have been recalibrating the offsets but could you just throw light on the overall contour of SME business? Plus, earlier in the commentary you mentioned that refinance business could be probably a good growth driver.
But then I understand that even the underlying commercials there have not been supportive enough. Right. So yeah, I mean how do you perceive this? Thank you.
Raul Ignatius Rebello
Thanks Shweta. See the MSME business, there is a bank playbook and there’s an NBFC playbook. We are not in the, we are in the M of the msme. That’s the micro enterprises. We started largely with the in that segment, the micro and the small, you know, in the corridors of the let’s say say the auto ancillary business. So more of manufacturing playbook, which is a concentrated playbook of participating wherever there is a concentration of these enterprises. As we increased our participation in the msme, we did go into the service and the trading participants in the MSME and our HERO product there was lap right.
And for us the benefit or the early mover advantage, the kind of ability to move faster was the branch presence that we had and we populated a lot of our branches with the MSME skill set staff, had the underwriting teams in place, etc. Etc. Happy to say that the lab business from a very two year standpoint is now 50% nearly of our MSME business, of our SME business. We also we came off from participating in let’s say bulky businesses long back. So we don’t have any bulky SME sitting in our portfolio. But we do have machinery loans, we do have supply chain finance which is including bill discounting, et cetera, machinery loans sitting there.
And our ability to grow forward would be, I do think that this is a segment where there is still headroom for participation. One might think that there is too much of participation from existing banks and NBSCs, etc. Though we have come late to the game, we do believe we have a relevance in the segments that we operate to start growing in a more meaningful manner. So there is no, I would say challenge in the ability for us to, to, you know, to kind of intimidate from, you know, from our shop and buy incremental business versus where the competitors are.
That’s on the SME side. You had any other question on refinance? I’ll invite Sandeep to come in. On the used car and the refinance business.
Sandeep Mandrekar
Yeah, on the, on the used car. On the refinance business, yes. That is, that is the area of growth which we have factored for ourselves. If you really look at the current year with the new vehicle business being down, the used vehicle market has not grown and we have kind of posted a marginal growth of around 3% going forward I think. And there the rates are quite considerable enough for us to continue to participate into that segment. We are looking at growing in both, that is existing customer refinance plus buying and selling. What we have stayed away from consciously is not going overboard in terms of the BT product as far as the used is concerned.
That’s the right way for us to approach it going forward. Between quarter two, quarter three, with the festival season coming in, I think we should be able to capitalize more on this.
Shweta Daptardar
Okay, sure. Thank you.
operator
Thank you. The next question is from the line of viral shah from IASL Capital. Please go ahead.
Unidentified Participant
Yeah, hi. Thanks for the opportunity. Two fundamental questions you mentioned about that we have now much more products in our arsenal to kind of say drive the diversification piece. So where do you see this now happening? Of course in the past we had set certain targets but for various reasons we could not accomplish that. So where do you see this number one? Number two is how does this then flow into your profitability? And I think Nishant did ask you about say the guidance about when do we see a meeting kind of an roe if you can help us walk through the roe tree from a medium term perspective.
And lastly just some bit of clarificatory question. You mentioned that 50% of the SME is LAP. Can you mention like what are the yields and the ticket sizes over here.
Raul Ignatius Rebello
Thanks. Viral. There are some details which are not out publicly so I won’t be able to give you the granular details. Whenever we put it out there, I’ll spell it out. So your question on the underlying asset categories, I mean there’s nothing new I can offer in commentary in the wheels business of course we have dominance in some segments. I mean tractor is one of that which is at least attractive for now. Would have heard my colleague Sandeep talk about the used vehicle business which can see some turnaround potential in this fiscal itself. But overall it’s an attractive space from us, from our NBFC playbook PV business.
We do have very very strong synergies with various OEMs, including the leading OEM in the country. We have run into some kind of challenges with the entry level passenger vehicles and if there are some tailwinds which can augment that growth, we’ll be able to ride that wave. But overall the wheels business is bear our fortunes. It’s like our we are over indexed on that and there’s no downplaying that. So if there is a bit of lullness we will be impacted. The other segments I anyway spend time in the call talking about I won’t repeat myself on the ROE and roe.
I mean on the roe getting into mid teens just.
Unidentified Participant
Rahul, before you get onto the second question, my question was more about how do we see this mix on the non breach business progressing. We are currently still anywhere between 5 to 10% depending on some pieces of the other businesses that we classify. Some of them were legacy businesses but just more from directional perspective say two years out. How could this can this be more like 15% or 20%.
Raul Ignatius Rebello
Yeah. See I’ll just be consistent with what I said earlier. You know, by FY a long way out by FY 30 we look the non wheels business to be 25% of the right by FY 30. So there is, it’s going to be a gradual climb up. There’s no point in buying, buying diversification inorganically and not doing it in a profitable manner. So yeah, that’s what I would stay with a 25% non vehicle book by then. Can I move to the next question?
Unidentified Participant
Sure, sure.
Raul Ignatius Rebello
So on the ROE front clearly I think we’ve hit close to 12.5% last year. I think this year of course they have come down because of the tire one going up. Our first stop is get to 15. To get to 15 we need to hit a 2.2 at least roe to level up at least and level up six times type. So there is a plan to get to that, you know 2.2.2 ROA. I’m not giving you like it will be done next quarter. But yeah, there is an aspiration to get there and then ultimately go up from 2.2 to 2.5.
But first stop is clearly 2.2. There are variables on pricing, there are variables on cough, there are variables on opex for us to do that and I think we have given at points of time what is the split there in from an do you want to hit that 2.2 ROI and then user light laboring up to get to that 15 roe?
Unidentified Participant
Got it. Thanks And I’ll be very best. Thanks.
operator
Thank you. The last question is from the line of prison engineer from clsa. Please go ahead.
Piran Engineer
Yeah. Hi team, thanks for taking my question. Just firstly going back to this pre owned vehicles disbursement. So it’s been at 15 20% of our total disbursements for a while and it’s not really grown a lot in the last two years. Just wanted to ask firstly are we mainly catering to just purchase of used vehicles or is it also more of refinance of existing customers? And secondly, even when it’s purchase of used vehicles, how much is say to new to Mahindra customers versus existing franchise customers?
Raul Ignatius Rebello
Hi Dyran, thanks for the question. So this 17% of our disbursement for pre owned vehicles, you’re right, it’s been FY25 or 16 and it’s come to 70 in Q1 of 26. There are two specific mixes and I’ll hand over to Sandeep soon. So one is we do hunt at various used vehicle dealerships to get to finance this business. So used PV usually and there’s some kind of very little bit of used CV but mostly used PV sitting out there. The second segment is from our internal customer base. Once they cross a certain period of time if they want to take a top up loan on their existing passenger vehicles, we do have that as a second segment but it’s a mix of both.
For the buy sell which happens in the open market because it’s not an existing customer where we have track record, we do need to look at a larger microscope on the underlying risk. And of late we had to take some calibrated calls. Right. So there are used vehicle dealers, etc. There are aggregators also. You would know the kind of aggregators which operate today, the spinnies, carvecos. We also have an in house car and bike. So we participate in the aggregators as well as the retail used vehicle dealers. And it’s always a calibration of how much of incremental business to buy with the right amount of risk that we have guardrails that we have for ourselves.
I’ll just hand it over to Sandeep for a yes.
Sandeep Mandrekar
There are three parts to this entire used vehicle business that we work with. The first one is existing customers where after a period of time we give that forms a large portion of what we do. Second, in terms of the buy and sell, there are three types of channels that we predominantly work with. One is the OEM organized channel where we have a fairly decent market share working with them. Second is with the dealers and the brokers who operate in the market. And the third is the aggregators that we work with. We work with all three of them.
And of course the broker and the dealer channel is the one where we do the retail business and with the other two is where we do it through their dealerships and showrooms. What we have consciously refrained ourselves from doing is going overboard when it comes to the external PT business which also a lot of the market counts into the used vehicle. Because I think that’s an area where we have said that we will be extremely cautious and not go with those, you know, overboard scale ups in terms of LTV so that we are able to manage our delinquencies in the right order.
And that’s why our POCL business has been calibratedly growing and we do believe that we should be able to grow that further.
Piran Engineer
Just to follow up on this with existing customers it’s always just a top up like in the Rural market will you see that the guy has bought, I don’t know, tractor once and then maybe he’s paid well on time two years later he goes to buy a used car or something like that but it’s all very different customers and you can’t really cross sell no, it is.
Raul Ignatius Rebello
Two different types of requirements that come in. If he has an existing asset which is, you know, financed from us and he’s coming to the maturity of the asset and he requests to top it up for a particular end use of the loan, that’s where we give him the money that’s an existing customer being topped up less but it does happen that somebody who’s purchased a tractor with us wants to go in and buy a car for himself. That’s where we do have a program where we look at a pre approved and pre qualified offer for that customer and give him that offer so that he gets the loan with lesser documentation and probably some more commercial benefits.
Piran Engineer
And just secondly on the funding side, firstly if I may ask this, what’s the incremental cost of fixed rate debt like NCB and on the floating rate debt with how much of a lag will we see the repricing benefit play on?
Raul Ignatius Rebello
I’ll invite Pradeep to offer commentary. Yeah so we have all witnessed the reduction in repo and I think whatever loans are linked to the mclr I think there is always a lag between the passing on the benefits of reduction increased by the banks so I think we are looking at a quarter on quarter basis incremental benefits flowing in we will not be able to quantify that benefit which we accrue but yes, every quarter by quarter we will see the incremental benefit coming in the cost side okay. And cost of NCD back now after this hundred.
Unidentified Speaker
So if you look at we kind of have just it should be in the range of 710 to 720 kind of range three years and. Okay.
Piran Engineer
Yeah thank you and wish you.
operator
Thank you thank you ladies and gentlemen in interest of time we’ll take this as a last question I now have the conference over to the management for closing comments. Over to you sir.
Raul Ignatius Rebello
Thank you everybody for being patient and coming on the call. Just a quick reflection of Q1 as I mentioned earlier I think it was a steady quarter. Just to remind everyone considering Q1 collection efficiencies of the FY24 and 25 we are about 100bps up in Q1 of this year so the collection engines have worked reasonably well in this environment we do think that there are underlying, there are challenges which we had to navigate in Q1 from a growth standpoint. But we remain optimistic and we see the remainder of the year as the possible tailwinds will be positive.
And we are trying to capture all avenues of growth as they play out to make sure that the rest of the year is positive. And we continuously look at the year as being an optimistic future. Thank you very much and thank you for hosting us. Motila Loswal Team Abhijit thank you.
Sandeep Mandrekar
Thank you.
operator
Thank you. On behalf of Motila Loswell Financial Services Ltd. That concludes this conference. Thank you for joining us. And you may now disconnect your lines. Thank you.