Mahindra and Mahindra Ltd Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mahrukh Adajania - Nuvama Wealth Management Ltd. - Analyst : So just in terms of your ECL coverage now, what would be a fair estimate of coverage on a steady-state basis for the next four to five quarters. So it's dropped 3%, you had also guided to it that the cover would fall. But is there a target ECL you have in mind? Like some companies have a target that they will not go below 50. There are some NBFCs. So is there any such range that we need to be aware of?

Question: Mahrukh Adajania - Nuvama Wealth Management Ltd. - Analyst : Okay. But could you share the LGDs --? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Mahrukh Adajania - Nuvama Wealth Management Ltd. - Analyst : Got it. And just a follow-up on this that last year sometimes you had indicated that you will have a positive rollover following COVID by the second quarter of this year. As far as I remember, that is possibly what you've said. So, does that still hold good?

Question: Mahrukh Adajania - Nuvama Wealth Management Ltd. - Analyst : Okay. Thank you.

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Yeah, hi. Good evening, Paul. A couple of questions. First one, again, more from the medium terms or that this 1.8% ROE that now comes of so many moving parts. Now, you also have a stated strategy to sort of move up in the customer profile that will, of course, put some pace around your asset yield. Of course, over the coming quarters and years, you will benefit from the cost of funding side. But then, OpEx is kind of a very sticky at around 40% cost-to-income ratio of course, even there is some improvement. But if one were to look at some 70-basis-point improvement that is needed for ROA level, how are you seeing -- I mean, given your kind of the product offering in mind, the customer profile that you are seeing, which are they (inaudible) because cost side also, it does not seen that, okay, given the kind of your model, the product mix and customer that's going to come up dramatically. And credit cost is already now, irrespective, particularly if I've got a quarter number, 1.5%. So that is question one. Second, again, related to the ECL. If I go through the presentation disclosure, there's a negative movement for stage 1. So basically, now Stage 1, your comments are almost like coming to 60 basis points from 80 basis points a year ago. Now lastly, the product segment has not changed that dramatically. I understand that what you are saying on the LGD side. But for Stage 1, has your PD estimates also changed dramatically? That's sort of a leading from 0.8% coverage, invested one year back to now 0.6% and almost like a Stage 1 provision in fact, reduced slightly despite the fact that, okay, there is AUM growth, 25%? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Very clear. The 2.2%, again, you are saying is the quarter exit for Q4 or for the full year? Because I mean, if it's a full year, then again for the 9 months, your ask rate will be 2.3%-plus.

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Thank you.

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Yeah, thank you. Good evening, Raul and Vivek. Thank you very much for the opportunity. So sorry to belabor on the ECL model again. So, we are just looking for some handholding in terms of how we should be looking at forecasting on the credit cost side. So, if I were to use the framework -- you talked about some amount of benefit coming with rollover post COVID. So, if I were to look at the numbers, pre COVID there in the total ECL, this is ECL 1 plus 2 plus 3, was around 3% of the total asset base. Is that a benchmark, which we should hold on REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call that the company will not go down below that level on a total provisioning basis or even that number might not hold given that the change in customer profile is -- we have better customer mix and product mix? And secondly, in the same thing, GS3 at that point of time, I think it was around 40% odd. At the moment, we still are way above that level. So, should we see that normalizing to -- on the provisioning -- the Stage 3 PCR going to that level towards the end of this year?

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Sure. Got it. And the second question is with regards to the OpEx. Obviously, it's a big focus area for us, and it's been trending down. So, the 2.5% aspiration on OpEx side, can we see that number towards the end of this year? Or is that a number which we should see in FY26?

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Got it. And lastly if I may. On the growth side, the volume growth is negative for this quarter in terms of number of contracts or 1.5% negative YoY. So, I think it's only driven a value in this quarter. And you did talk about some of the constraints on the OEM side as well as the volumes have been weaker there. So, can you talk about your strategy on delivering the growth aspiration which you have set for this year?

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Got it. Thank you.

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : Just two questions from my side. One was the -- you revisit the ECL and LGD model typically once a year or twice a year, I mean how often do we kind of see these ratios changing? That is one. The second is on the PPOP growth this quarter, which was closer to around 14%-odd. Given the clear lag between disbursements and loan growth and I think based on your guidance of around INR1.2 lakh -- you have INR120,000 crores kind of loan growth by the end of the day. But it is fair to assume that loan growth comes down. So, what kind of PPOP growth are we really looking at for the year? And second point also, I think a related point over here is that if I look at the margin, your margin actually or your yield on loans have declined on a year-on-year basis. I'm looking at total loan income on average business assets. So, I was just curious as to why we -- I think in our ROE walk, we are looking at around 25 basis points sort of an expansion in yields. At least in the first quarter, we seem to have almost like a 20- basis points kind of a decline. So how do we really expect to catch up over year? And in light of, a, weakness in margins, and b, sort of growth coming down, how do we really look at PPOP growth for the year?

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : Because your growth itself could be somewhere closer to 20s or thereabouts, given the lead lag in disbursement growth, so --

Question: Jignesh Shial - InCred Capital - Analyst : Yeah, thanks for the opportunity. Today I was also going to the same line. So basically, assuming that cost of funds is going to remain relatively elevated, how are we going to see the yields moving up? Are we going to see the similar kind of disbursement and asset composition -- asset mix composition or are we seeing that there will be some changes happening out here? And also, since we are moving more towards high ticket vehicle and all, does that also indicate that that could be a little lower yield and better on OpEx side? Or that assuming incorrect? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Jignesh Shial - InCred Capital - Analyst : Understood. And just one more, whatever -- the last quarter, the Northeast issue has happened. Whatever was the losses we already booked it, right? Nothing else been left out to be recognized now?

Question: Jignesh Shial - InCred Capital - Analyst : The Slide 15 that you had given geographical distribution that sounds really good. If you can give such more color on the book and all, that would be really helpful.

Question: Piran Engineer - CLSA - Analyst : Yeah, hi. Thanks for taking my question and congrats on the quarter. Raul, just getting back on this, if you can just comment a bit on pricing competition in the market in cars and CVs. You mentioned that you've taken some (technical difficulty) yield hikes.

Question: Piran Engineer - CLSA - Analyst : Yes. I just wanted to understand how pricing competition is in the market in cars and CVs. You mentioned that you've taken disbursement yield hikes in the last two quarters, and we've heard this before also. But somehow in the numbers, it does not really show up when we just calculate interest income divided by average loans. So just curious to understand what's going on there. And secondly -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Piran Engineer - CLSA - Analyst : No, not NIM, yields.

Question: Piran Engineer - CLSA - Analyst : So just pricing competition. The second part was on the liability side where we've been trimming commercial paper. And just wanted to understand the logic of doing that when rates are elevated and it's better to lock in lower cost of funds. So those are my two questions.

Question: Kunal Shah - Citigroup Global Markets - Analyst : Yeah, hi. So firstly, with respect to yields again, so you highlighted, in terms of at least on the product side, we are largely done and there shouldn't be too much of drag. But when we look at it in terms of the regions, okay, wherein we were more focusing on, say, affluent and maybe outside of the rural, could that continue as a drag? Or maybe -- and there also we have achieved the levels which we were looking forward to, and there should not be any further pressure on yields?

Question: Kunal Shah - Citigroup Global Markets - Analyst : Yeah. And second is, last time you indicated that maybe OpEx, it's not very easy to climb down because you will continue to invest. And this time, you are highlighting that maybe levers are completely in your control, and the benefits are accruing from it. So not getting the contradictory statements over maybe a quarter. So, no doubt you are highlighting in terms of 15 bps getting shaved off. But is it like on the investments we have cut down a bit and that's giving the added benefit on the OpEx to assets?

Question: Viral Shah - IIFL Securities - Analyst : Yeah, hi. Thanks for the opportunity. So, Raul, I have few questions. So one is on your yields, right? So, as you mentioned that it takes time to reflect on a book basis the kind of hikes that you have taken, so, what explains the quarter-on-quarter 40-basis-points decline in your yields? Because I'm sure the book mixes on a sequential basis wouldn't have made that kind of a difference?

Question: Viral Shah - IIFL Securities - Analyst : So, Raul, if you can quantify like what was the interest write-back in 4Q and what was the kind of interest reversals that you had to do with this quarter?

Question: Viral Shah - IIFL Securities - Analyst : Okay, no problem. The next is on growth, Raul, if you -- I look at the preowned vehicle, again, last -- until last quarter, you have been mentioning that this is a segment which is going to be a growth driver. And then when I also look at it in terms of your tractor segment, where we saw kind of a degrowth, we saw another NBFC player reporting very strong growth in that segment. So, is there anything to do with either in terms of the segmental growth coming down or in case of tractors we losing market share? Any of those things?

Question: Viral Shah - IIFL Securities - Analyst : Got it. And lastly, in terms of your asset quality and the credit cost piece. So, as you and Vivek have been highlighting that in the second half of this year is when you saw some scope for coverage reduction, we have kind of preponed that. But what could be your sustainable credit cost when we go into FY26? That is one. And second, related to that, is that when I see the delta in your Stage 2 and Stage 3 relative to 4Q in this quarter and versus last year, while the delta is high, how come the collection efficiency number remains the same at 94% YoY?

Question: Viral Shah - IIFL Securities - Analyst : So basically, we see further scope of PCR reduction even in '26 or (multiple speakers)

Question: Viral Shah - IIFL Securities - Analyst : Got it. And if you can also explain the collection efficiency, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Viral Shah - IIFL Securities - Analyst : No. But Raul, if I look at Stage 2 as well as Stage 3, which are the overdue buckets, the delta between 1Q over 4Q, both -- this quarter has increased versus last quarter -- 1Q of the last year. So, despite the delta as an overdue is increasing, I think the collection efficiency should have been different versus what it was last year?

Question: Viral Shah - IIFL Securities - Analyst : Got it. Makes sense. That's it from my end. Thank you, Raul, Vivek.

Question: Gao Zhixuan - Schonfeld - Analyst : Congratulations on good set of results. Just wanted to understand on the margin side. So, what's our guidance or outlook for margin this year?

Question: Gao Zhixuan - Schonfeld - Analyst : Yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 12:30PM, MAHM.NS - Q1 2025 Mahindra and Mahindra Ltd Earnings Call

Question: Gao Zhixuan - Schonfeld - Analyst : That's very clear. And sorry to go back to the ECL model and the coverage, just want to understand a bit more because I think on previous calls, we talked about our LGD and PD assumptions being decided by the mathematical look back, moving average peer. And so that moving average will slowly come down. Just looking at the coverage ratio which is a pretty sharp move from a quarter-to-quarter perspective, unlike the past three, four quarters. So, it's a bit hard to imagine that the moving average will change so much, just with the one quarter forward roll. Or do I understand it wrongly as every quarter, we refresh discretionary, how do we -- what kind of LGD PD (technical difficulty)

Question: Gao Zhixuan - Schonfeld - Analyst : Got it. And if you talk about -- we don't disclose the absolute LGD level. But do you mind give us some color on, let's say, year on year this quarter versus the past couple of quarters? How much improvement in LGD have we seen and how does that compare?

Question: Gao Zhixuan - Schonfeld - Analyst : Got it. So basically, QoQ, our LGD improved 4 percentage points. It's going (technical difficulty) roughly there -- is that the right way to look at? Because on QoQ, LGD dropped by 3, 4 percentage points. So (technical difficulty) a good way to say that our LGD QoQ is --?

Question: Gao Zhixuan - Schonfeld - Analyst : Got it. Thank you so much.

Question: Jigar Jani - Batlivala & Karani Securities India Pvt Ltd. - Analyst : Yeah, hi. Thanks for taking my question. Two questions from my side. One is on the disbursement growth. So last quarter, we have guided for about 14% to 15% growth for the full year of FY25. If you just back calculate the numbers and the run rate comes to almost [INR17,000 crores] run rate (technical difficulty). I understand second half is a little bit heavy for us as compared to first half, but do you still stand by that guidance or you think that there will be a slight moderation (inaudible) still? And my second question is on write-off, so we had also guided that write-off would see a continuous decline going ahead. But if you compare the write-off on a year-on-year basis, it's marginally higher. So, any guidance on what kind of write-off we could see for FY25 that would be better. Thank you.

Question: Sameer Bhise - JM Financial Institutional Securities Ltd - Analyst : Just one quick question. What is the incremental cost of borrowing for this quarter?

Question: Sameer Bhise - JM Financial Institutional Securities Ltd - Analyst : Okay. And you expect similar corridor to be maintained, is that a fair assessment?