Mahindra & Mahindra Financial Services Limited (NSE: M&MFIN) Q4 2025 Earnings Call dated Apr. 22, 2025
Corporate Participants:
Raul Rebello — Managing Director and CEO
Analysts:
Abhijit Tibrewal — Investor Relations
Mahrukh Adajania — Analyst
Raghav Garg — Analyst
Avinash Singh — Analyst
Nischint Chawathe — Analyst
Shubhranshu Mishra — Analyst
Viral Shah — Analyst
Shweta Daptardar — Analyst
Abhishek Murarka — Analyst
Harshit Toshniwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good evening, and welcome to the Mahindra and Mahindra Financial Services Limited Q4 FY ’25 Earnings Conference Call. This call will be recorded and the recording will be made public by the company pursuant to its regularity obligations. Certain personal information such as your name and organization may be asked during this call. If you do not wish to be disclosed, please immediately disconnect this call. Ladies and gentlemen, please note, this call is not for media representatives or investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. 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, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the call over to Mr Abhijit from Motilal Oswal. Please go-ahead.
Abhijit Tibrewal — Investor Relations
Thank you, Ryan. Good evening, everyone. I’m Abhijit Tibrewal 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 Q4 FY ’25 earnings. To discuss the company’s earnings, I’m pleased to welcome Mr Rahul, Managing Director and CEO; Mr Pradeep Agrawal, Chief Financial Officer; and Mr Sandeep Nandrikal, Chief Business Officer. On behalf of Motilal Oswal, 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 for his opening remarks. With that, over to you, sir.
Raul Rebello — Managing Director and CEO
Thank you thank you, Abhijit. Good evening, everyone, and thank you for joining us on our Q4 earnings call. As mentioned, Pradeep, our CFO, has just joined us a month ago and we welcome him to the leadership team. Pradeep’s two colleagues, Sabna and Rakesh also on the call along with Sandeep, Chief Business Officer,. Subur, I would request you to keep the investor deck handy as usual. I’ll be referring to certain slides, which I’ll call-out during the course of the commentary. I request you to turn to page number four, which is the key highlight slide. So here you’ll see we’ve created two panels for quick comparison and quick kind of reference to both quarter-four and the full-year. First, on the disbursement front, it’s been a mild-to-moderate Q4 and more mostly like a full-year if you look at the growth of 2% and 3% respectively, which is also reflective of the underlying wheels commerce that we’ve — we participate in. The book, however, has still grown at 17% considering the disbursements of the past and we have closed at close to INR120,000 odd crores of book, INR19,673 to be precise. With respect to asset quality, we continue to operate in our desired zip codes. The GS3 closed at 3.7% and GS3 plus GS2 below 10%, basically at 9.1%. And on end losses, you know, we separately disclose end losses because this is operating metrics of actual crystallized losses. This is a combination of write-offs and settlement. When you add provisions to it, it culminates into the full credit cost. So the whole — the end losses for financial year ’25, every quarter of financial year ’25 has been in rupee value crores, lower than the preceding year, which shows that we have less amount of portfolio, which is either getting written-off or losses due to settlements. Just to give you a comparison, we have drawn the line from on the right-hand side from ’22 to ’25, you’d see that the end losses has sequentially come down from 2,513 to 1,559. On overall credit costs, Q4 was at 1.4% and for the full-year, we were at 1.3%. This is compared to 1.7% in the last fiscal. Our NIMs, well, we have to acknowledge have compressed both sequentially and an annual basis. Overall, one could attribute it to two factors. Yes, the cost of funds has still remained a bit elevated during the year and we have seen a marginal reduction in our yields too. I’ll go into details when we discuss the margins. The highlight on PAT for the quarter, it was down 9% and for the full-year, of course, up 33%. I request you to move to page number five now where we will talk about specific operating metric highlights for the year. You know on the business side, the tractor leadership in terms of both NBFCs and banks will continue to be top of the pile. Our leadership position also got further established because we’ve seen M&M and Suraj being much higher in terms of incremental market-share. Overall, we’ve seen a Y-o-Y growth of 8%. We continue to have a strategic focus on increasing our fee-based income. The corporate agency licenses help in that front. We now have tie-ups with 10 insurance companies and the fee-based income has showed in well for the year. On the diversification front, the SME business has delivered a 48% disbursement growth during the year, which will continue to be a focus area for us going-forward. We have talked about our transformation journey with the project Udan. We are seeing benefits of this early benefits. We have successfully launched the digital onboarding on a pilot basis and a whole collection stack journeys have gone live. We are seeing outcomes. As I said, we see our non-cash collections have a significantly increased from 69% in last fiscal to 77% in this year. Furthering on the efficiency front, our disbursements, if you see, we have talked about our disbursements have seen a CAGR of 17%, but our headcount has been pretty flat for the last three years. We continue to make investments on the tech front to be resilient. We have migrated most of our applications, our critical applications to the cloud. And finally, I must mention that it’s a — it’s encouraging to get outside validation. We have been awarded the best talent and workforce team by business today among NBFCs, which is a reflection of our ongoing commitment to invest in our people and our workforce. I request you to proceed now to page number eight. I will place some commentary on the individual product growth. The growth for Q4 was quite reflective of the growth for the full-year. I did mention tractor. So one of the stronger performances followed by passenger vehicles. We have seen regrowth, flattish growth in the rest of the segments. CD has been flat, has been de-growing and our three-wheeler has regrown as well as the POCL the pre-owned vehicle business. Some of the de-growth, of course, can also be attributed to rebalancing of our risk appetite done in the certain segments that we wanted to recalibrate between the growth and risk aspirations. Our SME business, of course grew — I did comment on this earlier on. I think at a summary level, if you look at the non-wheels business, it grew for — it accounts for 7% of our new disbursements versus 5% in the last fiscal. I request you to move to page number nine where I’ll talk about margins and the overall viewpoint. So yes, the NIMs did come down to 6.5 for the full-year as well as for the Q4. Now breaking down the NIM performance, cough has come down — has gone up by-20 basis-points. You know, there has been of course, a leverage increase also as we consume more capital. Overall borrowing rates also had started to come down only in Q4, so we didn’t see a full-year benefit for this, but we do see a going-forward benefit benefiting in cough which will flow-through NIMs. On the yield and split on loan and fee income, sequentially quarter-on-quarter, yes, the loan income this year declined to 11.6%, while fee income witnessed an increase to 1.3%. On a full-year basis, I must say that the loan plus fee has remained nearly range-bound at 12.8%. Operating expenses have sequentially, quarter-on-quarter increased by-10 bps, but on a full-year has gone up by — have gone down by-10 bps to 2.7%. Credit cost for Q4 was at 1.4% versus NIL for the previous quarter. We did talk about the PCR benefit that we got in last quarter. But for the full-year basis, the credit cost has decreased by-40 bps from 1.7% to 1.3%. This is, again, as I mentioned earlier, both factors working well, the end losses going down as well as provisions by-10 bps. Moving to asset quality, quality deep-dive on page number 10 and 11. The GST number at 3.7% I did mention it decreased we are seeing you not such a sharp decrease that we saw last fiscal. You would have — just to remind you, last fiscal Q3 ended at 4 and we did drop 60 bps to 3.4. This year relatively the underlying I think we can’t compare it to last fiscal in terms of the wherewithal on collections on overall cash flows, not as positive as last year, but nevertheless, we did see a 20 bps decline from Q3 to Q4 in this fiscal. In rupee value terms, the bottom part of the slide shows that credit cost in a rupee value terms has decreased INR205 crores in 2025. This is INR156 crores in end losses and close to INR50 crores in provisions. Now moving to Page 11, you know, we did guide, if you remember, at the end of Q2, we did guide for the bottom right-hand side of your screen when we had the GS2 numbers, which went up in Q2 as well as the credit cost went up. We made a — we made a guidance of sorts that the GS2 plus GS3 will be range-bound below 10%. We have closed at 9.1%. We also did give a range of 1.8% to 1.5 for credit cost. Happy to note that it closed at 1.3%. We also had a — we did face a lot of comments last-time on where do we see the PCR cover, which sharply fell to 50.1% in close of Q3. We did mention that you did see a — we did see a good recovery of the COVID quarter, which resulted into that decline. But we also mentioned that the PCR cover won’t significantly climb in the next two, 3/4. The PCR number has climbed to 51.2% and we do see this range-bound. I did give a guidance also to where we expect it to the next three, four quarters climb to definitely not back to the original levels that we saw at COVID. Moving to Page number 12, you know all of you would recollect the end of fiscal ’22 beginning of ’23, we did mention how we would prioritize the various key metrics for the organization. We did give aspirational numbers that we would hope to close by ’25. I want to be a completely transparent on mentioning what went well, what didn’t go so well. There are buttons of colors of red amber green that we have placed, which you can see on page number 12. On-balance, I think asset quality was clearly worked as per plan. We have — we have operated in the zip codes that we wanted to operate on both in on the GST numbers, the GS2 numbers as well as credit cost. Some of that has resulted into, let’s say, a sharper than anticipated shave-off in terms of NIMs. We do see ourselves climbing from here on. Cost of funds clearly was not an envisage number back then. On the growth front, again, I think a grain is a bright reflection of where we have moved in terms of book growth. Yes, the recent disbursements have not been as encouraging for us to be seeing the same levels of book growth in next fiscal considering what we’ve seen this year. On the investments in operations, we have done a significant amount of senior management upgrades. You’ve seen the slate of our leadership team, all those who have come in over the last year and a half as well as the talent that already existed in the organization. We’ve got a great set of leadership teams of the — of the past as well as some new leaders, functional leaders who have come in. We’ve spent on tech, digital opex numbers also directionally moving well. Overall diversification, honestly not really moved in-line with our earlier anticipation anticipated levels. But we have a calibrated plan in-place to get the non-wheels business to start now moving in the right manner and right clip. Overall ROA also has moved well between last year and this year and frankly, we don’t — we don’t want to operate in these in these kind of ranges. We do see ourselves climbing up with two and beyond very soon and there is a calibrated plan on all levels of the DuPont, whether it’s revenue, whether it’s OpEx, whether it’s cost of funds, credit cost to make sure that we start moving towards the right levels of ROE. The last page, which I’ll end on and then hand it over for questions. We’re not giving any specific guidance for ’26 and going-forward, but I’ll leave you with where the organization is prioritizing on. Clearly, our differentiator is the wheels business. We will over-index on our — defending our position of strength in the various wheels businesses, specifically in tractor, you would have seen the forecast for the year. We do see it from most of the OEMs, a positive commentary on tractors. We do — we have equipped the shop to make sure we write those tailwinds. We also see some green shoots in some businesses. The FCV business of — has been talked about to have a turnaround year next year. This SUV business within PVs will see a disproportionate amount of increase compared to the rest of the PVs. So we will attach our sales to those — to those opportunities to find growth within the wheels business. Clearly, know, the margins need to step-up from here. We do believe we have hit our rock-bottom in terms of NIMs of 6.5, we should climb only from here onwards. And there will be a there will be benefits of the cost which we’re starting to see in Q4 flow forward as well as some of the pricing efficiencies which are stated to play-out. On the risk level, I think we are in the right mix right now and just maintaining that number needs to be the focus. We will continue to be absolutely focused and on the ball on the collections, on underwriting, on risk control unit, etc., etc. Our in SME leasing, fee-based income will continue. You would have seen in our financials, we have taken a higher provision in MRHSL. We are right shopping — rightsizing the shop employee base from close to 10,000 has come down to 5,000. We have provided the net NPA now in MRHSL is below 1.5%. We have made provisions and we think that’s reflective of the business and we will only see cost correction from here on. Look at the bottom of the slide, being a resilient business across cycles is a priority of whether it is efficiencies in sales, underwriting, all those will be a big part of the priorities. We have a specific use-case for all our digital and AI activities to give upsides on business and controls. And as I mentioned, the ROA aspirations going-forward is only to clients from where we closed this year. So with that, I’ll pause and thank you for your patient hearing. We will move to question-answers.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while we poll for questions the first question comes from the line of Maharuk Adhania from Nuvama. Please go-ahead.
Mahrukh Adajania
Yeah, hi, good evening. So my first question is that how do we view disbursements from here on, like any rough outlook on what the disbursement growth would turn out to be given that there are some segments identified with higher rates or lower yields, which you don’t want to now be doing. So brief view on disbursal growth. And then most of the margin improvement would be driven by cost of funds only. Would that be the correct takeaway? And the third question is on asset quality, right? So do we see the PCR stabilizing here now or how do you view it? Because the improvement in the 4th-quarter in the Q3 has been very minimal, right? So compared to other 4th-quarter, which you had already alluded to. So it’s not as if you had not guided to it, but how do we view it from here on is most of the stress over now would — how would asset quality and ECL pan-out in?
Abhijit Tibrewal
Yeah, thanks. Thanks, Varuk. So your three questions on — I’ll take them sequentially. On the growth front and how we see specifically financial year ’26, see the kind of underlying vehicle segments where we have a very-high market-share, we will continue to find growth in the underlying commerce there. I think the last year, what we have seen is there has been a significant moderation in the passenger vehicle growth, in the CV growth. And our growth of 3% or flattish growth in CV has been more or less a kind of paced with the way in which the underlying commerce has moved. In tractor, we grew 8%. I think if I were to just summarize what we can you look-forward for next year the trends of — in passenger vehicle, the trends of SUVs continues. The low ticket, the kind of small vehicles are continuing to see stress, which was a part of our portfolio. So we’ll have to recalibrate what we can get from that growth. But clearly, we have also managed to get a good amount of growth coming in from the UCV segment. And we’ve also in the CV segment, as you know, in the LCV, whether the bus segment, we’ve managed to get some growth there. We look at finding opportunities in wherever the underlying commerce is promising. I think amongst the vehicle segments, Tractor seems to be right now the most attractive at least from a forward standpoint. But with our disproportionate amount of dependence on wheels, we will have to find growth opportunities across all wheels categories for next year. And I think considering the organization was — one would say we did over-index on more on the controls, on the risk, etc., considering where we ended-up in the COVID era. We did prioritize that over, let’s say, growth in the last couple of years. So we do believe now we are well-equipped to catch the growth whatever growth signals and growth opportunities present themselves, we’ll be in a position to catch it. We do want to make sure that we get to in the medium-to-long term, we do want to get to the middle teen to high-teen growth. That’s our objective. I don’t think the organization wants to grow below that clip in the growth side. I don’t give specific guidance for every year, that’s our objective. On the margin front, since you asked about whether the margins will come only from cough, that’s not the case. Cough will improve. What are the other levers are clearly the fee-based income, which you’ve seen quarter-on-quarter go up. We will just touch the surface of the corporate agency license, we will see more fee coming in. We have — as the leasing business grows, there is fee avenues from that too. So we have a fee-based income, which will provide for margin expansion. We also look at some of the underlying wheel businesses, as you know, Tractor has a higher NIM, that should also provide us some expansion going-forward. So those are the kind of levers for cough and — sorry for margin expansion. On PCR front, I did give a guidance on where I think in the next four quarters, we can maximum go and I just want to repeat that we did come out from 6162 to 50.150.2%, we have planned up to 51. I don’t see that number looking at our — at our collection throughput, etc., going beyond in the next four, five quarters beyond, as I said last-time also 55%, that’s on the outer end. Just considering the kind of pools of collections and pools of where we collect from in the 42-month period.
Mahrukh Adajania
Sure. Thank you. Thanks a lot.
Abhijit Tibrewal
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go-ahead.
Raghav Garg
Sir, hi, good evening and thanks for the opportunity. My first question is on asset quality. So I see that the slippages, they continue to be higher versus last year’s 4th-quarter. They are up about 63% for the quarter and about 70% for the year. Can you highlight what are some of the challenges that you faced in the 4th-quarter with respect to, say, collections? And another question is, how are you looking at FY ’26 with respect to asset quality outcome? That’s my first question.
Raul Rebello
Yeah. So, maybe to ask your question, I’ll take them all at-once.
Raghav Garg
Sure. My other question was on the pre-owned disbursements. So they’ve seen declining, right? Just wanted to understand that bit a little bit more as to what has happened there. That is a focus area that has been a focus area for you, right? But disbursements have declined. So just wanted to get some color there. And I think our question is on funding cost-benefit from the 50 basis-points you may have answered that partly. But if you could just give us some number in terms of, say, whether it’s a, 20 40 bps benefit that you would get on the funding cost from a 50 basis-points rate cut? That’s all from my side and thanks.
Raul Rebello
Thanks,. I’ll take the question sequentially on the first one on asset quality and slippages. Asi, we provide you the details. We don’t — just for consistency, we don’t give a gross slippage number, but you can calibrate it from the loan losses and the provisions. Typically, you basically compute slippage as a percentage of opening book of the previous year. If you do that number, you would see that we have been consistent compared to last year, it’s been in the 3% to 3.5% range. So there’s not any — even for Q4, it’s not been a number which is very divergent from the past. In Q4, what we see and if you compare to last Q4 also, we do tend to have an opportunity in Q4 to settle more cases because Q3, the whole repossession settlement momentum is usually much higher in Q4 as well as some of the traditional slip when we talk about bad debts, right, the bad debts by sequencing it, if you see the Q4 numbers, I traditionally see a higher amount of bad debt numbers. So you will see overall gross slippages in Q4 higher than the previous quarter. But if I were to look at the full-fiscal, gross slippages have not been higher than the previous two years. It’s been in the same range in percentage terms. Coming to the question on POCL on pre-owned vehicles, for us, pre-owned vehicles is a combination of top-up loans that we do within our existing customer segments and what we do in terms of the open-market, whether it is the dealer, broker community and the aggregator community. I would say this year, and I’ve been talking about this in the past to increase our used vehicle business. Let me say that the used vehicle business of our own customers who graduated the third year or fourth year, that has kept momentum. But some amount of the used vehicle business, just balancing between the risk that we saw in some segments, we sat out of some of that opportunity for last year in some pockets. Not to say this is structural. We are — we are looking at getting back with the right balance of making sure that we are able to, you know, bake in that risk and still grow that segment as a percentage of our incremental sourcing, we want to get this business to be upwards of 20%, it is closer to a 17% right now. So that’s the objective. It is just, let’s say, a couple of quarters where this has gone down compared to the previous quarters. Finally, on the cost-benefit of how the 50 bps repo impacts us, weight transmission takes time, it doesn’t happen immediately on TAP. Needless to say, we will see that benefit coming through. Some of the incremental lines that we have — we have raised in the last quarter are seeing that benefit, but I don’t think it will be something that we will see immediately. Going-forward, one can factor that these rate benefits considering that a lot of our borrowing is still floating our rate. Our lending 40%, 45% is fixed. So we should see a benefit of the rate transmission.
Raghav Garg
Thanks. Sir, just with respect to your first answer, so point was taken that your gross slippages are have been steady or at a similar run-rate over the last two years, three years. But when you look at the collections data as well, right, for FY ’25 full-year or whether you look at 4Q, it is lower. In fact, 4Q has been trending down since FY ’23. And that’s the point that I was trying to get some clarity on that your net slippages are higher price in this quarter and even for the full-year. What are the challenges? And then what is it that what is your outlook for FY ’26? If you can…
Raul Rebello
So, I can separately kind of give you clarity on the slippage numbers because there seems to be a disconnect in our understanding. I can clearly provide that clarity. I don’t see a slippage sequential increase. Q4, as I mentioned, does go up over Q3. My guidance for next year, I don’t want to kind of discount that it’s not as rosy as FY ’24. There is a requirement for us to make sure that in an environment where underlying leverage levels are slightly higher than a base-case where there’s been a long period of let’s say, liquidity squeeze, we will need to make sure that we continue to collect and ensure that our collection efficiencies are keeping pace. Right now, there is good amount of efforts being done to ease the liquidity situation and hopefully the rates also going down, we should see we are getting into a zone which won’t be as tight as maybe Q2, Q3, Q4 of last fiscal. We should see some relief. Nevertheless, I don’t want to hazard that things are going to be extremely rosy, we will need to be mindful of the fact that collection efforts, especially for a business like ours where we lend to a lot of middle-income segments new to credit customers, you will have to continuously be on the ball on collections?
Raghav Garg
Thank you. That’s all from my side. I’ll hand the call. Thank you.
Operator
Thank you. The next question comes from the line of Avinash Singh from Emkay Global Financial Services. Please go-ahead.
Avinash Singh
Yeah, hi, good evening. Thanks for the opportunity. If I mean one were to look at your FY ’25 numbers versus guidance, I mean, the ROA mix has been largely driven by, as you acknowledge, the NIM part and the other part also is the opex standing higher. Now I mean looking ahead, I mean and also growth are a bit softer. If you were to still chase growth or try to do growth better than what you have done in the last four years or at least in-line. And in that — and also try to diversify particularly those diversification like initiatives like mortgage and all will come at some opex, whether for the tech branch or people infrastructure. So in that context, even if there had is going to be some bit of improvement towards NIM, but there also the mortgage kind of a thing could put some pressure. But how do you see opex going-forward? I mean, my question is that okay, not immediate quarter, but how this 1.9% is going to improve? Because opex I still see to remain sticky. At the same time on the yield side also, if the vehicle segment is kind of — the growth is slow, then their competition can also keep some pressure on yields. So still, I mean, beyond fee income, are there some kind of I have a concern around you know, yields and also how do you see opex kind of you know looking ahead? So eventually, I mean we can visualize how the RA is going to be?
Raul Rebello
Yeah. Thanks. Since your question was I think a slightly more dense on the opex question, especially with the diversification. While Q4, I do acknowledge has gone up by-10 bps to 2.9, there were many one-off opexes in Q4. I would urge you to look at the overall opex for the full-year, which we are sequentially down by-10 bps from last year. Do we — do we think that the steady-state DuPont, the opex should be in a 2.9 like we exited Q4? Definitely not. It is our objective to operate in the same levels of about 2.5 to 2.7%. Irrespective of the diversification plan, some of it upfront will get baked-in. In the mortgages, just to clarify, this is not extreme prime mortgages that we plan to do, while we build the capability for mortgage and a lot of it will be leveraged from MRHFL itself. Affordable housing is going to be over-index in the mortgage playbook. There will be an opex increase, but that will come in also when you look at the overall ROA, the revenue is quite attractive for the affordable housing play in participation. So in a nutshell, I do not see us breaching the 2.7 kind of a number of on an opex front, maybe there might be quarters where we might go above and be in that range. But overall, I don’t see us significantly climbing from where we are irrespective of how much of diversification we do. It might go up, as I said, marginally to accommodate for those investments, some of them will be capitalized. But overall at an ROA level with the — with the revenue which will come in from the commensurate businesses, see, we’re not going to do businesses which will be revenue depleting over the medium-to-long term. Most of the choices that we make will be with businesses which can keep our revenue, our yield aspirations in-line to get us to that 2% and then climbing to the 2.5% ROE.
Operator
Thank you. The next question comes from the line of Nishin Chawathe from Kotak Institutional Equities. Please go-ahead.
Nischint Chawathe
Hi, thanks for taking my question. This is actually on your growth guidance. I guess it’s a fair expectation to say that we’ll probably be somewhere closer to mid to-high — mid to high-teens growth over the next — over the medium-term. But what is the role of non-vehicles in the overall business? How do you expect it to ramp-up and what proportion could non-vehicles be, let’s say, two, three years down the line? Yes. And is that kind of baked into the numbers that we’re talking about?
Raul Rebello
Yeah. Thanks,. Again, I’m not doing any FY ’26 guidance here, but if you just look at last year, our incremental disbursements moved up to 7.5% kind in the overall mix. Our non-wheels business now is close to a 7% on a stock basis. I think in the next three to four years, the right mix would be to get the vehicle business in the 75% range and the non-wheels business, which is primarily in the SME business in the leasing and we will talk in detail about the — in the — in the coming quarters about how mortgages will also start adding up in the overall playbook. So yeah, the way to look at it in the medium in the next three to four years is to get the vehicle business in a mix to be closer to a 75% and the to be 25%
Nischint Chawathe
And pre-owned is something which we consider as a part of new.
Raul Rebello
Pre-owned will be wheels part of.
Nischint Chawathe
Got it. And you know, the provisions and cleanup in the housing subsidiaries done or would you kind of still expect you know some kind of noise out there over the next couple of quarters?
Raul Rebello
No, no, we think we have — have — there’s only one-way now the way is up. As an up in terms of profitability, provisions are all done.
Nischint Chawathe
Sure, got it. Thank you very much and all the best.
Raul Rebello
Thanks.
Operator
Thank you. The next question comes from the line of Mishra from PhillipCapital. Please go-ahead.
Shubhranshu Mishra
Hi, all. Thanks for taking my question. Three questions. The first part is we have some new members. If you can introduce them with a brief background of numbers. I’m sure we have put out the notifications as well. The first. Second is, if the auto of deals are just slowing down or at least we are to the slowdown, it is slowing down for everyone. So we — how do we think of yield protection or do we think of compression going-forward because everyone would be looking at the same size. And the third is around the collection. How many people would be deploy in collection and how many of them would be in soft market, how many of them would be hard market if we can see that? It will be great.
Raul Rebello
And thanks, Subranshu. I’ll take your questions. First on the people front, you know the leadership team last Pradeep has been a seasoned professional with Aditya Birla for many years he was CFO there. Mahesh is our CRO. He joined in about six months back last at the S bank with many years with HDFC. Karayan came in after 27 years from RBI, a very senior officer in RBI. He handles our collection sorry, compliance function a head of legal is Farida who you know, with the group earlier heading legal and now she is our chief legal officer. We have Manish HR who has been with us. And Sandeep, as I mentioned, is a wheels professional really been with Mahindra Finance for a long period and led many growth this year here Bijoy came into heading business and the co-lending business he was a senior leader at Axis Bank joined six months back. Kumar is our SME leader about 2.5 years in the organization was running a $2 billion business in a premium private sector bank just our head of mortgages was to MR close to a decade with Bajaj Housing Finance you know, our head of data digital many years with the technology function, head of underwriting Gaurav again from a private sector bank head of marketing joint sometime back a few months back, Anur Raj, you know, again, from Aditya Virla Group. So we’ve got a solid set of leaders who have come in and of course, we’ve always had a great set of existing leaders from the Mahindra Finance family who are extremely great sales and distribution professionals where we had to augment the team was more in the functional side, control side. And I think we’ve got a great set of leaders now. The second question on the wheels business, NIMs and the challenges, you’re right, it’s become the — the wheels business is a very attractive segment for most lenders, private sector, public sector, NBFCs. So yeah, it is a — it is a defense plus growth strategy for us. We are cognizant of the — of the competition intensity. We do have some both in terms of distribution, in terms of geography, in terms of partnerships with the dealerships and channels. We don’t take any of that for granted, but we keep working on the efficiencies that we have and working on them to from wherever we are. I don’t want to kind of discount that, yes, margins might shrink, but we will also have to make sure that our ability to become more efficient so that the overall margins are protected is — and that’s why for the last couple of years, you would have seen without any addition in manpower, we have still managed to have growth coming in. Some of the efficiencies of the tool kits we use are playing out and it will further play-out as we go-forward. On your question on manpower split between collections business, collection manpower with the kind of we can’t just the — we have reorganized our collection workforce to be more product-specific and we have a bucket focus also so that the collection teams are segregated basis the buckets that they own. There’s a huge bias towards early bucket collections and product collections, a decent part of the organization. I’m not sure we give those details on what percent is correction, so I will refrain from that. But I must say that we have got much more efficient in the collection function. Just read it overall, if the organization has kept us constant manpower for the last three years, then there will be clearly, you know, every function would have got more efficient.
Shubhranshu Mishra
Understood. Thanks. I’ll come back-in the queue.
Operator
Thank you. The next question comes from the line of Viral Shah from IIFL Capital. Please go-ahead.
Viral Shah
Hello. Yeah, hi,. Thanks for the opportunity. So Rol, I would say broadly three questions. One is, so I understand, of course, within these, there’s various moving parts which are playing out. But specifically with regards to the SUV portfolio, right, we mentioned this — I’m sure we are referring to the exclusive partnership that we have paused with the parent, right, to fund their EV business. So how, I would say margin or ROA accretive is this business? And why say being our ambition to be a more independent player, why should we then pursue this business? Second, I would say, is more on the asset quality front. So see, I understand this year, we’ve managed to track the lower-end of what you had guided 1.3%, but you had a PCR buffer, which we kind of utilized it this year. Now going ahead, how should one look at this business? Because incrementally your — not just the end losses, but then the provisioning on the non-NP assets will also start contributing to your P&L cost. And thirdly, if you can give some color on the mortgage business for all, what is the plan over there? Like I understand you said that it could be over-indexed on the affordable side, but within that, what is the, say, ticket size or the yield segment that we are targeting? That would be helpful. Thank you.
Raul Rebello
Yeah. Thanks,. So I’ll take your questions in sequence. See, clearly, the EV business, which M&M has launched, which has got some good success going-in terms of bookings, et-cetera, there is an aspiration to do 5,000 units a month even if we get a good decent share there. It is — it is going to be a good amount of disbursement growth for us. We do not plan to, you know, only finance, let’s say, or just finance the low IRR business, it was very encouraging for us to see that 230 dealers across the country, be it the metro cities like Bombay or the up-country locations like let’s say, Nudaipur also, where the — where the demand for these vehicles have been all across and not just related. In fact, the demand, I might say is no higher in the self-employed segment, right, than the salaried segment. So we are seeing a very universal demand, which gives us the ability to operate in that sweet-spot of IRRs that we want also. So I don’t think one has to be worried that the EV business is only going to be a low IRR business. We are going to get a decent share of the IRR that we would like here. Having said that, we have participated as an entry offer in the low IRR also. We will — we are looking at, as I mentioned this in the past, we have now some tie-ups with some mainstream banks on co-lending, etc. So we will see how best to use our balance sheet as well as our distribution to orchestrate this commerce that we are finding, right? The objective is not just to do growth at any cost. We need to be — and you are right, we need to balance it with the margin requirement. That’s on the EV business. So it is going to be a promising monthly clip of numbers that we can get and we will see how best to keep on-balance sheet versus off. On your second question on the PCR and the credit cost, what to look at, I’m not changing my range. I’m going to stick to a range that we would — the ROE can stomach for this business. We will operate in the 1.3 to 1.7 credit cost, which is a combination of end losses and provision. I think what is clearly we have benefited from this year is the provision has hardly — there’s not been any 10 bps provision for the full-year, whereas the credit cost, the end losses have been 1.2, hence 1.3. But this can’t be the same for every year. And hence with the — with the levers that we have at hand, we will operate in the 1.3 to 1.7 corridor. Definitely we’d like to be in the lower part of it, but one has to be — has to be fair and conservant and reasonable on that. On the mortgage business, see, I think we do want to do too many things at one-time. We first want to set that — set the existing book in order very quickly. I would say, first leadership of providing leadership clarity that’s happened, rightsizing the organization that has happened, you would have seen sequentially, if you look at the results also in that business, the GS3 has marginally come off, but more importantly, the number of employees, the kind of choices we are making on growth, there’s no-growth. Actually it’s all the GS3 reduction is happening mostly on collections and you know, making sure that we are over-indexing on collections right now. Once we have reasonable in the next couple of quarters, a clarity that we have gone progressed in the past that we have wanted to on the mortgage business, we will then clearly have a separate investor forum, analyst forum to detail our mortgage plans, which could be two or two or 3/4 away. As I said for the next two, 3/4, the objective is to rightsize and get the existing INR7,000 odd thousand crores in shape.
Viral Shah
No, if I may, just a few clarifications to the answers that you gave. So on the mortgage side, you mentioned rightsizing the business alone. So going ahead, will we be doing this business only in the sub or also in the standalone book?
Raul Rebello
Both options are open, Viral, I don’t want to kind of give you a clear because we want to have the right forum to elaborate on that, both options are open at the moment.
Viral Shah
And secondly, you mentioned on the credit cost range. Just wanted to reclarify, you mentioned 1.3 to 1.5 and not 1.7, right?
Raul Rebello
1.3 to 1.7.
Viral Shah
Okay. And…
Raul Rebello
Real stress scenario. I want to be — we are in a cyclical business, we have cyclical cycle, so I want to give a range in the cycle that we operate.
Viral Shah
Okay. And lastly on the EV business, I understood what you mentioned. If you can give some color on the yield — indicative yield at which we are doing the business.
Raul Rebello
Clearly, we have to climb from where we are. We are — we are already seeing a trajectory in the fee-based income. We will also see a with the — with some of the choices of asset categories in the wheels business that we are over-indexing on. Tractor clearly is going to be a big winner in the in the year ahead, which should give us some lifts from where we are.
Viral Shah
So I mentioned the EV business, not the wheels.
Raul Rebello
Sorry. I thought you said yields you were talking about.
Viral Shah
Overall yields, no yields in the EV segment, the EV business that we are currently doing. So if you can give indicative color there.
Raul Rebello
But we don’t give such a, I would say specific guidance, Viril, so I would refrain from that.
Viral Shah
Okay, more comment. Thank you,.
Raul Rebello
Thanks. Thanks. Thanks,.
Operator
The next question comes from the line of from Elara Capital. Please go-ahead.
Shweta Daptardar
Thank you, sir, for the opportunity. So couple of questions. So given the guidance of mid to high-teen kind of growth and also coming from your commentary wherein you see only as a bigger lever at least in the medium-term for growth and we also had this agenda of reducing the business cyclicality by reduce — by increasing the prime versus subprime or below prime customer share. But in the quest of also NIM management, we sort of — and I take the liberty of saying that we put it on the back-burner. So now with respect to business cyclicality, vis-a-vis our guidance of mid to high-teen growth of which are the levers or business segments which materially will contribute in next one year and it’s not like the non-wheel business suddenly will climb from, say, 7%, 10 odd percent to, say, 25% immediate period? So that’s my first question. Also now taking queue from the previous participant question, now that the credit cost guidance clearly has been — has moved up higher, right, from 1.3 to 1.5 now to 1.7 so is it that I don’t know, so should we infer that write-off will continue to remain higher? So we are already what in 440 for 490 odd range. So that’s been since past two quarters. Will it remain in that or that similar kind of a number in absolute terms? And also if you can just give a profiling of the assets of this write-off, it could be diversified, but just which kind of business segments are contributing to write-off pool? Yeah, that’s — these are my two questions. Thank you.
Raul Rebello
Thanks,. So on your first question on growth, I just want to clarify, when I said mid to-high teens, I was not talking about FY ’26. I was giving you our — for the next three to five years, what is our range of growth that we would expect. I would still say FY ’26, one needs to be reasonable. We’ll have to be cautiously optimistic on FY ’26, just considering the recent ways in which the view business has moved, I don’t think and my guidance of mid-teen growth was not for FY ’26 and I don’t want to kind of talk about specific year growth. In the medium-term, if you were to ask me where will the growth come from? In the wheels businesses, if you just look at the the underlying commentary from the OEMs, whether it is the PV business, whether it’s the tractor business, whether it’s the CV business. I think if you look at a CAGR — CAGR growth up till FY ’30 projections, which most OEMs have given or research reports have given. One could say that most of these businesses are in the low-teen kind of guidance, right? That’s the kind of guidance at least I’ve seen. Tractor might be a little lower than that, but otherwise, it has been a — there has been like a 10% to 12% or 10% to 13% guidance in terms of CAGR for the next three to five years. Being a leading player in all these categories, I do think we should try to keep our market shares and build-on that and that’s a our capability with the distribution investments we are making to make sure that unit plus value, there will be value appreciation, I’m sure in each of these categories to give us the mid to high-teen rupee value growth. That’s the estimation in the medium-term. On the non-wheels business, clearly, it’s not a question of team growth or non-team growth. We’ll have to grow in multiples, whether it’s the SME business or some of the leasing business, etc. So those businesses will clearly have to be with the base that they are at, grow at a much higher. On your question on asset quality, see, I think just to be fair and I gave a guidance of 1.3% to 1.5% at the end of Q2, that was for the full-year. The guidance of 1.3% to 1.7% is more like a — I’m giving you us because of the cyclical businesses we are in, I’m again giving you a range that the ROE tree can afford for us in a cycle — down-cycle, upcycle. So the 1.3 to 1.7% is more like a medium to long-term range that we will operate in. The 1.3 to 1.5 was the exit of FY ’25. One — again, you know where the management and the team would love to be at is in the lower-end of that spectrum, of course, but we have to factor-in adverse cycles also. On the write-off question that you had in the end, do we see write-off happening? How do we see write-off happening? Is it happened in specific sectors? I’m not sure we give a — we give a color of whether write-off happens more in one versus the other asset category. I wouldn’t say it is too divergent. It has been quite secular. We write-off — the write-off periods have been as per the model with policies we have kept the write-off periods. And the fact that the amount of write-off has been reducing is encouraging. It’s kind of a reflection of our underwriting capabilities. It’s a reflection of — if you’ve seen our Stage 2, our Stage 2 numbers have been, I would say, very steady-state for the last two, three years range-bound. So if the Stage 2 numbers have been range-bound, I think you can — your model can factor that clearly the write-off numbers will not suddenly start going up. If the Stage 2 numbers are going up, then that would be a reflection of how write-offs would start — or Stage 3 was going up, then that would hazard the write-off number to go up in the foreseeable future. But the fact that the early books or the Stage 2, Stage 3 has been range for the last three years, in fact going down should have the write-off settlement numbers in the overall credit cost being again range-bound and at the lower-end.
Shweta Daptardar
That’s pretty helpful. Best luck. Thank you.
Operator
Thank you. The next question comes from the line of Abhishek from HSBC. Please go-ahead.
Abhishek Murarka
Yeah, hi. Thank you. Thank you for taking my question. So Rahul, one clarification. So this yield drop of 30 basis-points Q-o-Q, what is the real cause of it? Because if I look at your mix, it doesn’t seem to have changed that dramatically. So is it that yields itself have fallen or is it something else, maybe some calculation issue, why exactly would yields have fallen about 30 bps Q-o-Q.
Raul Rebello
Yeah. Yeah. Abhishek, any other questions? I’ll take them all together.
Abhishek Murarka
Yeah. The other thing is, when you say the non-wheels business will get to 25% in three, four years, is it 25% of disbursements or AUM? Because AUM for it to get to 25% of AUM, that would be quite sharp. So I just wanted to get a sense on that.
Raul Rebello
I’ll just come again on your second question.
Abhishek Murarka
I think you said the non-wheels — so mortgage plus non-wheels would reach around 25% in three to four years. That is 25% of disbursements or 25% of AUM.
Raul Rebello
Yeah. So the goal is to get to 25% on AUM. As I said, I’ve kept optionalities out of mortgage, etc., where we’ll do and how we look at the mortgage business also. Part of the SME business and the leasing business over a period of — let me give you an outlook. This is not three years, not four years. This is over a period of three to five years, right? That’s the mix that we are looking at achieving at the end of, let’s say, ’29, ’24. Coming to your first question on SME leasing
Abhishek Murarka
— sorry, just to clarify, that’s SME leasing and mortgages. These three put together.
Raul Rebello
SME leasing and mortgages, yeah, that’s right.
Abhishek Murarka
Got it. Got it. Thank you. Thank you.
Raul Rebello
Yeah, your first question?
Abhishek Murarka
Yeah, on the yield drop, just wanted to understand why it would have fallen.
Raul Rebello
Yeah, you’re talking about quarter-on-quarter, right? So let me say — let me first get on the full-year, we have been a range-bound on quarter-on-quarter, there has been a sequential drop. While there is no change in specific in specific loan pricing, et-cetera, because that won’t reflect. There was a one-time you know, as you know, we have reset a lot of our systems, our loan origination system, loan management systems during the year. And what we did clearly as we as we moved is to recognize customers during the year as we need to provide the interest calibration from the date of disbursement instead of, let’s say, date of agreements, et-cetera, we have provided that benefit back to the customer to make sure that our interest calibration for customers is extremely on-date instead of T plus one, et-cetera, it is on T date. So that benefit has gone back to the customer and that’s the Q4 drop that you would have seen as a one-time?
Abhishek Murarka
So is that now a normalized now that your systems would have reset to this new model, 11.6%, 11.7, is that a normalized level to expect or it goes back? So there’s a one-time effect, but it goes back to —
Raul Rebello
One-time
Abhishek Murarka
One-time effect.
Raul Rebello
So we gave the benefit for the — for the period to the customer.
Abhishek Murarka
And any chances of yields improving going-forward?
Raul Rebello
Yeah, as I said, see, if I want to break it up into near-term and long-term, we are hit our — I think we have hit our lower level even on yields, because for FY ’26, especially what we saw in Q3 and Q4, the tractor incremental businesses have been chugging along really well and we see this proceeding to the whole of next fiscal. And tractor needless to say, the yields come in at a much higher clip than the normal vehicle portfolio. So we are hopeful to see the overall loan income go up some of the benefits of the corporate agency and plan.
Abhishek Murarka
Okay. So Rahul, just to summarize, basically for the yields, your main dependence is on tractors firing next year. If that happens, then you’re home with the yields objective.
Raghav Garg
So see, I think the way to read it is tractor disproportionately higher than the rest of the pack and used also. Used and tractor the two ammunition in our kitty to get yields up.
Abhishek Murarka
But used has not really been picking-up for you. So any specific reason there? Because last quarter also that was a bit of a bit of a slow quarter for used and this quarter as well.
Raul Rebello
So yeah, that’s right. As I mentioned that there are some pockets where we had to balance between risk and growth. Having a having, let’s say, wrapped our head around that equation, we should — it won’t — it doesn’t seem as powerful an artillery as tractor, but yes, it is on our on our shelf to dial-up on.
Abhishek Murarka
Got it. Okay. Thank you so much. Thanks for clarifying. Thanks. Thank you. The next question comes from the line of Harshit Koshniwal from Premji Invest. Please go-ahead.
Harshit Toshniwal
Hi, sir. Am I audible?
Raul Rebello
You are.
Harshit Toshniwal
Sir, two questions around the diversification point that could be when we look at our business, I and then,
Operator
I’m sorry to interrupt you there. Could you please speak up? The audio is too low.
Harshit Toshniwal
Yes. Is this your time?
Raul Rebello
Yes. Yes, please.
Harshit Toshniwal
Okay. Just wanted to understand that when — and probably if you can help me understand the basics, I don’t have that history part. But when we say diversification, as a strategy, what are the products where we want to diversify? And when we look at today’s mix, I think SME is that line-item where we can see some of the diversification going through. And within the others, we have a trade advances. It’s a club number when we look at the AUM, if you can help us split that what is the trade advance basically to the dealers itself, which I would not want to — should we classify as a new vertical itself? And what is the real diversification in terms of personal loan, other loans? If you can help us give some color that when I look at today’s region and where exactly are we sitting on the diversification and what are the products who are — even within the SME segment, if you can throw some color on the nature of the business?
Raul Rebello
Yeah. So Ashit, it will be a wait for everyone else to — for me to double-click on diversification because we’ve done it in detail. But if I were just to help you to navigate to page number 17, where you will see a detail of our business assets across categories. You will see how we are on-book right now broken up and there is a page before that on disbursements and the share. To give you some color on your last question on SME, see, the SME business has a bunch of — it’s largely — it’s not largely, I would say, mostly only retail. We have a little bit of supply-chain finance sitting there, but it’s mostly retail and in retail mostly lab, right? So that’s the constribution of the SME business. The others that you’re talking about, there is a trade advance, which is basically a, let’s say, a line which helps retail finance at the vehicle business front. We don’t blow that up into the others into trade advance, personal loans, consumer loans. Consumer loans, let me tell you, there is no consumer loans for this fiscal. We were doing it last year, which we sunset. So there is of course a implements business, tractor implements business, which is also sitting in that. They are so small that I would — I’m sure you would appreciate it doesn’t make sense of breaking it and that’s why it’s in others because they are materially so low. Once any of those businesses becomes higher than 5%, then I think it makes sense for us to do. Right now, they are all clubbed in the other section. I’m happy to take you through a specific diversification offline, just to the
Harshit Toshniwal
I think that makes sense. Just one follow-upil that — so when we say 25% mix as a target, we include primarily SME into the SME lab as one-product segment into that. I’m just trying to understand that if we need — if we now see the diversification today, that number we should just look at the SME mix in the portfolio.
Raul Rebello
Yeah. If you look at it today, but I haven’t given up the optionality or I haven’t kind of told you about our — I mean, if we do it at the right forum, options are open on where the mortgage comes into that mix. Clearly, right now, if you look at it, it looks a little — it looks a little aggressive, it’s only SME. So read it in with that optionality in-place. There’s of course a leasing business also that we have right now. And there’s a small PL business which is which is just built over the last two years.
Harshit Toshniwal
Got it. And one just follow-up, maybe I think you have mentioned that you want to discuss in the different. So that’s fine. But in case if when we look at our branch structures today and if you want to expand more into — when we look at the SME lab segment as a whole, what percentage of branches we will be having this product right now of the, 13 15 1360 branches. And then is there a room for branch penetration itself for that to grow much faster at this point of time?
Raul Rebello
Yeah. So again, you know unlike business, the lab business is not such a distributed business. We don’t need to do it out of 1,400 branches. We today do it — I don’t know whether we disclose that number, but I mean, I can share, we do it about 150-odd branches. We don’t need to increase much more. There is a — there is a concentration in certain hotspots of the lab markets and it makes sense for us to surround branches, as you know are close to 1,400 branches. So we have distribution in most of the hot spots. We don’t need to unlock all the 1,400 branches for SME, SME — the lab business is, as I mentioned, a little more concentrated business around certain hot spots.
Harshit Toshniwal
Okay. One last thing, sir, that disbursement in the other — the trade advances that segment itself has been growing very fast. If you can help us what is exactly driving that disbursement? That just the trade advantage to dealers only at this point of time. This quarter, it was a INR400 crore number, but that number has been shaping up well in the last two, 3/4.
Raul Rebello
So please don’t read that as only, as I said, trade advance. There is farm implements, there is, there is personal loan sitting in there. Trade a is a part of your business.
Harshit Toshniwal
Yeah, yeah. Sure. Okay, sir. Perfect. Thanks a lot.
Operator
Thank you. Ladies and gentlemen, that was the last question and we conclude the question-and-answer session. I now hand the conference over to the management for their closing comments.
Raul Rebello
Thank you, everyone. I hope we have been able to cover most of your questions. As I said, it’s been a year in reflection. It’s been a year of moderate growth, but nevertheless, we’ve seen some positive outcomes in terms of keeping asset quality in an environment which has been quite tough. We’ve kept that in a manner which we think is reflective of a resilient business. We do have a — we do have our plans to make sure that we get back on growth and we are able to make sure that as we find growth in the next few years, we keep the asset quality and the ROA aspirations now to operate in the zip codes of of inching upwards of 2% going-forward, right? And not again of ’26, as I said going-forward. But thank you very much for joining us on the call and look-forward to be engaged. Thank you.
Operator
Thank you. On behalf of Mahindra and Mahindra Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.