Ladies and gentlemen, good evening and welcome to the Mahindra & Mahindra Financial Services Limited Q4 FY25 earnings conference call. This call will be recorded, and the recording will be made public by the company pursuant to its regulatory 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 effects. All such individuals are instructed to disconnect now. A replay will be available for investment bankers and commercial bankers, including corporate and commercial effects. 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 Chabrawal from Motilal Oswal. Please go ahead.
Thank you, Ryan. Good evening, everyone. I'm Abhijit Chabrawal 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 FY2025 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 Mandrekar, 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. Rebello for his opening remarks. With that, over to you, sir.
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, are also on the call, along with Sandeep, Chief Business Officer, Veejay. Sadhguru, 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. Here you'd 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 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 participate in. The book, however, has still grown at 17%, considering the disbursements of the past, and we've closed at close to INR 120,000-odd crore of book, INR 119,673 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%. On end losses, we separately disclose end losses because this is an operating matrix 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.
The end losses for financial year 2025, every quarter of financial year 2025, have been in rupee value close lower than the preceding year, which shows that we have less amount of portfolio which is either getting written off or losses due to settlement. Just to give you a comparison, we have drawn the line on the right-hand side from 2022 to 2025. You'd see that the end losses have sequentially come down from INR 2,513 million to INR 1,559 million. On overall credit cost, 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. On NIMs, we have to acknowledge have compressed both sequentially on 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. Highlight on PAC 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. 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 Swaraj being much higher in terms of incremental market share. Overall, we've seen a YoY growth of 8%. We continue to have a strategic focus on increasing our fee-based income. The corporate agency license has helped 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 our whole collection stack journeys have gone live. We are seeing outcomes. As I said, we see our non-cash collections have significantly increased from 69% in last fiscal year 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 physical applications, to the cloud. Finally, I must mention that it is 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 saw one of the stronger performances followed by passenger vehicles. We have seen degrowth, flattish growth in the rest of the segments. CV has been flat, has been degrowing. Our three-wheeler has degrown, as well as the POCL, the pre-owned vehicle business.
Some of the degrowth, 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 aspiration. 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 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 due point. Yes, the NIMs did come down to 6.5% for the full year as well as for the Q4. Breaking down the NIM performance, COF has gone up by 20 basis points. There has been, of course, a leverage increase also as we've consumed more capital.
Overall borrowing rates also had started to come down only in Q4, so we did not see a full-year benefit for this, but we do see a going-forward benefit in COF, which will flow through NIMs. On the yield and split on loan and fee income, sequentially, quarter on quarter, yes, the loan income did see a decline 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 basis points, but on a full year, gone down by 10 basis points 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 basis points from 1.7% to 1.3%. This is, again, as I mentioned earlier, both factors working well. The end loss is going down as well as provisions by 10 basis points. Moving to asset quality deep dive on page number 10 and 11, the GS3 number is 3.7%. I did mention it decreased. We are seeing not such a sharp decrease that we saw last fiscal. Just to remind you, last fiscal, Q3 ended at 4%, and we did drop 60 basis points 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 and overall cash flows, not as positive as last year, but nevertheless, we did see a 20 basis points decline from Q3 to Q4 in this fiscal. In rupee value terms, the bottom part of the slide shows that credit cost in rupee value terms has decreased to INR 205 crore in 2025. This is INR 156 crore in end losses and close to INR 50 crore in provisions. Moving to page 11, we did guide, if you remember, at the end of Q2, we did guide for at 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 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 1.0%-1.5% for credit cost. Happy to know that it closed at 1.3%. We also had 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 we did see a good recovery of the COVID quarter, which resulted into that decline, but we also mentioned that the PCR cover will not significantly climb in the next two, three quarters. 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 in the next three, four quarters climb to. Definitely not back to the original levels that we saw at COVID.
Moving to page number 12, all of you would recollect the end of fiscal 2022, beginning of 2023. 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 2025. I want to be completely transparent on mentioning what went well, what did not 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 operated in the zip codes that we wanted to operate on, both in the GS3 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 year on.
Cost of funds clearly was not an envisage number back then. On the growth front, again, I think green 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 and operations, we have done a significant amount of senior management upgrades. You've seen the slate of our leadership team. All those 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 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 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 do not want to operate in these kind of ranges. We do see ourselves climbing up to and beyond very soon, and there is a calibrated plan on all levels of the due point, whether it is revenue, whether it is OPEX, whether it is cost of funds, credit cost, to make sure that we start moving towards the right levels of ROA. The last page, which I will end on and then hand it over for questions. We are not giving any specific guidance for 2026 and going forward, but I will 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 have equipped the shop to make sure we ride those tailwinds. We also see some green shoots in some businesses. The HCV business 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. We will attach our sales to those opportunities to find growth within the wheels business. Clearly, 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 benefits of the COF, which we're starting to see in Q4 flow forward, as well as some of the pricing efficiencies, which are slated 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. Diversity with 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-sizing 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 course correction from here on. Look at the bottom of the slide. Being a resilient business across cycles is a priority, 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. As I mentioned, the ROA aspirations going forward is only to climb from where we closed this year. With that, I'll pause, and thank you for your patient hearing. We will move to question and answers.
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 two. 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 Maharukh Adanya from Luwama. Please go ahead.
Yeah, hi. Good evening. My first question is that how do you view disbursements from year on? Any rough outlook on what the disbursement growth would turn out to be, given that there are some segments identified with higher rates all over years, which you do not want to now be doing? A 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? The third question is on asset quality, right? Do we see the PCR stabilizing here now? How do you view it? The improvement in the fourth quarter in the Q3 has been very minimal, right? Compared to other fourth quarters, which you have already alluded to, it is not as if you had not guided to it. How do we view it from year on?
Is most of the stress over now? How would asset quality and ECL pan out?
Yeah, thanks, Maharukh. Your three questions, I'll take them sequentially. On the growth front and how we see specifically financial year 2026, 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. Our growth of 3% or flattened growth in CV has been more or less 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 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. We'll have to recalibrate what we can get from that growth. Clearly, we have also managed to get a good amount of growth coming in from the SUV segment. We've also in the CV segment, as you know, in the LCV, whether it's the bus segment, we've managed to get some growth there. We'll look at finding opportunities in wherever the underlying commerce is promising. I think amongst the vehicle segment, tractor seems to be right now the most attractive, at least from a forward standpoint. With our disproportionate amount of dependence on wheels, we will have to find growth opportunities across all wheels categories for next year.
I think considering the organization was, one would say we did over-index 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. 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 won'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 COF, that's not the case. COF will improve. What are the other levers? Clearly, the fee-based income, which you're seeing quarter on quarter go up. We've just touched the surface of the corporate agency license. We will see more fee coming in. As the leasing business grows, there are three avenues from that too. We have a fee-based income, which will provide for margin expansion. We also look at some of the underlying wheels businesses. As you know, tractor has a higher NIM. That should also provide us some expansion going forward. Those are the kind of levers for COF 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 61, 62 to 50.1, 50.2. We have planned up to 51. I do not see that number, looking at our collection throughput, etc., going beyond in the next four or five quarters beyond the set last time, also 55%. That is on the outer end, just considering the kind of pools of collections, pools of where we collect from in the 42-month period.
Sure. Thank you. Thanks a lot.
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go ahead.
Sir, hi. Good evening and thanks for the opportunity. My first question is on asset quality. I see that the slippages, they continue to be higher versus last year's fourth quarter. They're 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 fourth quarter with respect to the collections? Another question is, how are you looking at FY2026 with respect to asset quality outcomes? That's my first question.
Yeah. Raghav, maybe if you ask your question, I'll take them all at once.
Sure. My other question was on the pre-owned disbursements. They've been 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. Just wanted to get some color there. I think the third question is on funding cost benefit from the 50 basis points rate cut. You may have answered that partly, but if you could just give us some number in terms of, say, whether it's a 20, 30, 40 basis points benefit that you would get on the funding cost from a 50 basis points rate cut. That's all from my side, and thanks.
Thanks, Raghav. I'll take the questions sequentially. On the first one on asset quality and slippages, I see we provide you the details. 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 the 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%-3.5% range. 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, traditionally see a higher amount of bad debt numbers. You will see overall gross slippages in Q4 higher than the previous quarter. 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.
What we do in terms of the open market, whether it is a 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. Some amount of the used vehicle business, just balancing between the risk that we saw in some segments, we shadowed some of that opportunity for last year in some pockets. Not to say this is structural. We are looking at getting back with the right balance of making sure that we are able to 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 17% right now. That is 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 basis points repo impacts us, rate transmission takes time. It does not happen immediately on tap. Needless to say, we will see that benefit coming through. Some of the incremental lines that we have raised in the last quarter are seeing that benefit, but I do not 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 lending 40%-45% is fixed. We should see a benefit of the rate transmission.
Sure. Thanks. Just with respect to your first answer, point-wise, APM data of gross slippages have been steady or at a similar run rate over the last two years, three years. When you look at the collections data as well, right, for FY2025, full year, or whether you look at Q4, it is lower impact. Q4 has been trending down since FY2023. That is the point that I was trying to get some clarity on, that your net slippages are higher, right, in this quarter and even for the full year. What are the challenges? What is your outlook for FY2026? If you can— [crosstalk]
Raghav, 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 do not see a slippage sequential increase. Q4, as I mentioned, does go up over Q3. My guidance for next year, I do not want to kind of discount that the picture is not as rosy as FY2024. There is a requirement for us to make sure that in an environment where underlying leverage levels are slightly higher than base case, where there has 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 a good amount of effort being done to ease the liquidity situation, and hopefully, with the rates also going down, we should see we are getting into a zone which will not be as tight as maybe Q2, Q3, Q4 of last fiscal. We should see some relief. Nevertheless, I do not want to hazard that things are going to be extremely rosy. We will need to be mindful of the fact that collection effort, especially for a business like ours, where we lend to a lot of middle-income segments, new-to-credit customers, we will have to continuously be on the ball on collections.
Thank you, [Bhat]. That's all from my side, [Ali]. Thanks.
Thank you. The next question comes from the line of Avinash Singh from Emkay Global Financial Services. Please go ahead.
Yeah. Hi. Good evening. Thanks for the opportunity. If I mean one were to look at your FY2025 numbers versus guidance, I mean, our risk has been largely driven by, as you acknowledged, the NIM part, and the other part also is the OPEX standing higher. Now, I mean, looking ahead, I mean, and also growth a bit softer. If you were to still seize 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 your some initiatives like mortgage and all will come at some OPEX with the Protect Branch of People Infrastructure. In that context, even if there is going to be some bit of improvement towards NIM, but then also the mortgage kind of a thing could put some place there.
How do you see OPEX going forward? I mean, my question is that, okay, not in each 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 yield. Still, I mean, beyond fee income, there is some kind of I have a concern around yields. Also, how do you see OPEX kind of looking ahead? Eventually, I mean, we can visualize how the ROA is going to be.
Yeah. Thanks. Since your question was, I think, slightly more dense on the OPEX question, especially with the diversification, while Q4, I do acknowledge, has gone up by 10 basis points to 2.9%. There were many one-off OPEXs in Q4. I would urge you to look at the overall OPEX for the full year, which we are sequentially down by 10 basis points from last year. Do we think that the steady-state Dupont ROA 3%, 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%-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 a capability for mortgage, and a lot of it will be leveraged from MRHSL shared itself.
Affordable housing is going to be over-indexed in the mortgage playbook. There will be an OPEX increase, but you know that will come in also when you look at the overall ROA. The revenue is quite attractive for the affordable housing participation. In a nutshell, I do not see us breaching the 2.7% kind of a number on an OPEX front. Maybe there might be quarters where we might go above and be in that range. Overall, I do not 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.
Overall, at an ROA level with the revenue which will come in from the commensurate businesses, we are 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% ROA.
Thanks. Thanks.
Thank you. The next question comes from the line of Niscnint Chawathe from Kotak Institutional Equities. Please go ahead.
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 teens growth over the next, over the medium term. 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? Is that kind of baked into the numbers that we are talking about?
Yeah. Thanks, Nischint. Again, I'm not doing any FY2026 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-wheel business now is close to 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-wheel business, which is primarily the SME business in the leasing. We will talk in detail in the coming quarters about how mortgages will also start adding up in the overall playbook. 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 75% and the non-wheels to be 25%.
Pre-owned is something which we consider as a part of yields, I believe.
Pre-owned will be wheels, part of wheels. Yeah. Yeah.
Got it. Are the provisions and cleanup in the housing subsidies done, or would you kind of still expect some kind of noise out there over the next couple of quarters?
No, no. We think we have, there's only one way now. The way is up. As in up in terms of profitability? Yeah, provisions are all done.
Sure. Got it. Thank you very much and all the best.
Thanks.
Thank you. The next question comes from the line of Shubhranshu Mishra from Philip Capital. Please go ahead.
[audio distortion] How do we think of yield protection, or do we think of yield compression going forward? Because everyone would be looking at the same pipe. [audio distortion] .
Yeah. Thanks, Subram Shiv. I'll take your question. First, on the people front, the leadership team, Pradeep, I'm sure we gave you background. Pradeep has been a seasoned professional with Aditya Birla for many years. He was CFO there. Mahesh Rajaram is the CRO. He joined in about six months back. Last assignment with Yes Bank, but many years with HDFC. Compliance Officer Narayan came in after 27 years from RBI. A very senior officer in RBI. He handles the compliance function. Head of legal is Faridha, who was with the group earlier at M&M heading legal, and now she is our Chief Legal Officer. We have Manish, who heads HR. He's been with us as well. Sandeep, as I mentioned, is a wheels professional, really been with Mahindra Finance for a long period and led many growth businesses here.
Bijoy, he came in to head the business and the full ending business. He was a senior leader at Axis Bank, joined six months back. Vickumar is our SME leader, now two and a half years in the organization, was running a $2 billion business in a private sector bank. Jaspreet, our Head of Mortgages, who has been seconded to MRHSL, close to a decade with Bajaj Housing Finance. Our Head of Data, Digital, Deepa, many years in the technology function. Our Head of Underwriting, Gaurav, again from a private sector bank. Our Head of Marketing joined some time back, a few months back, Anuraj, again from Aditya Birla Group. We have got a solid set of leaders who have come in. Of course, we have 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. I think we've got a great set of leaders now. Your second question on the wheels business NIMs and the challenges, you're right, it's become the wheels business is a very attractive segment for most lenders, private sector, public sector, NBFCs. It is a defense plus growth strategy for us. We are cognizant of the competition intensity. We do have some support 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 improve from wherever we are.
I do not 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. That is 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 toolkits we use are playing out and will further play out as we go forward. On your question on manpower split between collection business, collection manpower with the kind of we cannot just 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 is a huge bias towards early bucket collections and product collections.
A decent part of the organization, I'm not sure we give those details of what percentage is collection, so I will refrain from that. 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 every function will have got more efficient.
[audio distortion]
Thank you. The next question comes from the line of Veeral Shah from IIFL Capital. Please go ahead.
Hello. Yeah. Hi, Raul. Thanks for the opportunity. Raul, I would say broadly three questions. One is, I understand, of course, within wheels, there are various moving parts which are playing out. Specifically with regards to the SUV portfolio, right, we mentioned this. I am sure we are referring to the exclusive partnership that we have with the parent, right, to fund their EV business. How, I would say, margin or ROA accretive is this business and why, 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. I understand this year we managed to track the lower end of what you had guided, 1.3%, but you had a PCR buffer, which we kind of utilized this year.
Now, going ahead, how should one look at this business? Because incrementally, you're not just the end losses, but then the provisioning on the non-NP assets will also start contributing to your P&L costs. Thirdly, if you can give some color on the mortgage business, Raul, what is the plan over there? 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? This will be helpful. Thank you.
Thanks, Viral. I'll take your questions in sequence. Clearly, the EV business, which M&M has launched, which has got some good success going in terms of booking the theater, there is an aspiration to do 5,000 units a month. Even if we get a good decent share there, it is going to be a good amount of disbursement growth for us. We do not plan to 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 upcountry locations like, let's say, Udaipur also, where the demand for these vehicles has been all across. Not just related. In fact, the demand, I might say, is more higher in the self-employed segment, right, than the salaried segment.
We are seeing a very universal demand, which gives us the ability to operate in that sweet spot of IRRs that we want also. I do not 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. Viral, 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. 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 is on the EV business. 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 am not changing my range. I am going to stick to a range that we would, the ROA can stomach for this business. We will operate in the 1.3%-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 has not been any 10 basis points provision for the full year. Whereas the credit cost, the end losses have been 1.2%, hence 1.3%.
It is kind of the same for every year. Hence, with the levers that we have at hand, we will operate in the 1.3%-1.7% corridor. Definitely, we'd like to be in the lower part of it, but one has to be fair and reasonable on that. On the mortgage business, see, I think we don't want to do too many things at one time. We first want to set the existing book in order very quickly. I would say first, leadership, providing leadership clarity that's happened, right-sizing 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. 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 making sure that we are over-indexing on collections right now. Once we have a reasonable in the next couple of quarters clarity that we have gone, progressed in the path 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 three quarters away. As I said, for the next two, three quarters, the objective is to right-size and get the existing INR 700,000 crore in shape.
Raul, if I may, just a few clarifications to the answers that you gave. On the mortgage side, you mentioned right-sizing the business and all. Going ahead, will we be doing this business only in the sub or also in the standalone book?
Both options are open, Viral. I do not 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.
Secondly, you mentioned on the credit cost change, just wanted to re-clarify. You mentioned 1.3%-1.5% and not 1.7%, right?
1.3%-1.7%.
1.7%. Okay.
1.3%-1.6%. I want to be we are in a cyclical business. We have cycles. I want to give a range in the cycles that we operate.
Okay. Lastly, on the EV business, I understood what you mentioned. If you can give some color on the yields, indicative yields at which we are doing the business.
Clearly, we have to climb from where we are. We are already seeing a trajectory in the seed-based income. We will also see 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 year ahead, which should give us some lift from where we are.
Sorry, I mentioned the EV business, not the wheels.
Sorry. I thought you said the yields you were talking about, right? Overall yields.
Yeah, yields. No, no, yields in the EV segment, the EV business that we are currently doing, if you can give indicative color there.
We don't give such, I would say, specific guidance, Veeral, so I would refrain from that.
Okay. No problem. Thank you, Raul.
Thanks. Thanks, sir.
The next question comes from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. A couple of questions. Given the guidance of mid to high-teens kind of growth and also coming from your commentary, wherein you see only tractors as a bigger lever, at least in the medium term for growth. We also had this agenda of reducing the business cyclicality by increasing the prime versus subprime or below-prime customer share. In the quest of also NIM management, I mean, I take the liberty of saying that we put it on the back burner. Now, with respect to business cyclicality, these are our guidance of mid to high-teens growth. Which are the levers or business segments which materially will contribute in the next one year? It is not like the non-wheel business suddenly will climb from, say, 7%-10% to, say, 25% in an immediate period.
That's my first question. Also now, taking cues from the previous participant question, now that the credit cost guidance clearly has moved up higher, right, from 1.3% - 1.5%, now till 1.7%. Is it that, I don't know, should we infer that write-off pool will continue to remain higher? We are already, what, in the INR 440 crore-INR 490 crore odd range. That's been since past two quarters. Will it remain in that similar kind of a number in absolute terms? Also, if you can just give a profiling of the assets of this write-off pool, it could be diversified, but just which kind of business segments are contributing to write-off pool? Yeah, these are my two questions. Thank you.
Thanks, Shweta. On your first question on growth, I just want to clarify. When I said mid to high teens, I was not talking about FY2026. 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 FY2026, one needs to be reasonable. We'll have to be cautiously optimistic on FY2026. Just considering the recent ways in which the wheel business has moved, I don't think my guidance of mid-teen growth was for FY2026. 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 wheel businesses, if you just look at the underlying commentary from the OEMs, whether it is a PV business, whether it's a tractor business, whether it's a CV business, I think if you look at a CAGR growth up till FY2030 projections, which most OEMs have given or research reports have given, one could say that most of these businesses are in the low-teens kind of guidance, right? That's the kind of guidance, at least I think. Tractor might be a little lower than that, but otherwise, it has been there's been like a 10%-12% or 10%-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. That is our capability with the distribution investments we are making to make sure that unit plus value, there will be value appreciation, I am sure, in each of these categories to give us the mid to high-teen rupee value growth. That is the estimation in the medium term. On the non-wheels business, clearly, it is not a question of teen growth or non-teen growth. We will have to grow in multiples, whether it is the SME business or some of the leasing business, etc. Those businesses will clearly have to be, with the base that they are at, grow at a much higher clip.
On your question on asset quality, see, I think just to be fair, and I gave a guidance of 1.3%-1.5% at the end of Q2. That was for the full year. The guidance of 1.3%-1.7% is more like a I'm giving you a because of the cyclical businesses we are in, I'm again giving you a range that the ROA tool can afford for us in a cycle, down cycle, up cycle. The 1.3%-1.7% is more like a medium to long-term range that we will operate in. The 1.3%-1.5% was the exit of FY2025. Again, 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 right of question that you had in the end, do we see right of happening? How do we see right of happening? Is it happening in specific sectors? I'm not sure we give a color of whether right of happens more in one versus the other asset category. I wouldn't say it is too divergent. It has been quite secular. The right of periods have been, as per the model policies, we have kept the right of periods. The fact that the amount of right of 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 two, our stage two numbers have been, I would say, very steady state for the last two, three years, range bound.
If the stage two numbers have been range bound, I think your model can factor that clearly the write-off numbers will not suddenly start going up. If the stage two numbers are going up, then that would be a reflection of how write-off would start or if stage three was going up, then that would hazard the write-off number to go up in the foreseeable future. The fact that the early books or the stage two, stage three has been range bound 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.
That's pretty helpful. Best luck. Thank you.
Thank you. The next question comes from the line of Abhishek from HSBC. Please go ahead.
Yeah. Hi. Thank you. Thanks for taking my question. Raul, one clarification. This yield drop of 30 basis points QOQ, what is the real cause of it? Because if I look at your mix, it does not seem to have changed that dramatically. Is it that yields themselves have fallen, or is it something else, maybe some calculation issue? Why exactly would yields have fallen about 30 basis points QOQ?
Yeah. Abhishek, any other questions? I'll take them all together.
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. I just wanted to get a sense on that.
Just come again on your second question. Actually, I did not.
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?
Yeah. 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, 2920. Coming to your first question.
That's SME lease. Sorry. Just to clarify, that's SME leasing and mortgages, these three put together.
SME leasing and mortgages. Yeah, that's right.
Got it. Got it. Thank you. Thank you.
Yeah. Your first question?
Yeah. On the yield drop, just wanted to understand why it would have fallen.
Yeah. You're talking about quarter- on- quarter, right? Let me first give you on the full year, we have been range bound. On quarter- on- quarter, there's been a sequential drop. While there's no change in specific loan pricing, etc., because that won't reflect. There was a one time, as you know, we have reset a lot of our systems, our loan origination system, loan management systems during the year. What we did clearly 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 agreement, etc. 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, etc. It is on T date.
That benefit has gone back to the customer, and that's the Q4 drop that you would have seen as a one time.
Is that now 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? There is a one-time effect, but it goes back to.
One time. To your 11.7, one-time effect. We gave the benefit for the, yeah, for the period to the customer.
Any chances of yields improving going forward?
Yeah. As I said, see, if I want to break it up into near term and long term, we are hit, I think we have hit our lower level even on yields because for FY 2026, 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 yield is coming at a much higher clip than the normal vehicle portfolio. So we are hopeful to see the overall loan income go up and some of the benefits of the corporate agency and fee will climb.
Okay. Raul, 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.
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.
Used has not really been picking up for you. Any specific reason there? Last quarter also, that was a bit of a slow quarter for used. This quarter as well.
Yeah, that's right. As I mentioned, there are some pockets where we have to balance between risk and growth. Having an artillery attack ahead around that equation, we should, it does not seem as powerful an artillery as tractor, but yes, it is on our shelf to dial upon.
Got it. Okay. Thank you so much. Thanks for clarifying.
Thanks.
Thank you. The next question comes from the line of Harshit Bhashaniwal from Brahmji Invest. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yeah, you are, Harshit.
Thanks. Just a few questions around the diversification point. Today, when we look at our business, do you see any?
Harshit, I'm sorry to interrupt you there. Could you please speak up? The audio is too low.
Yes. This is Harshit.
Yes.
Yes, please go.
Okay. Just wanted to understand that when, and probably if you can help me understand the basics, I do not have that history part. When we say diversification as a strategy, what are the products where we want to diversify? When we look at today's mix, I think SME is that line item where we can see some of the diversification going through. Within the others, we have trade advances. If it is 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, it should be classified as a new vertical itself. What is the real diversification in terms of personal loan?
If you can help us give some color that when I look at today's AUM, 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.
Yeah. Harshit, it would be a wait for everyone else for me to double-click on diversification because we have done it in detail. If I were just to help you navigate to page number 17, where you will see a detail of our business assets across categories, you will see how they 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, 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? That's the constitution 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 loan for this fiscal. We were doing it last year, which we canceled. There is, of course, a implement business, a tractor implement business, which is also sitting in there. They're so small that I would, I'm sure you would appreciate it doesn't make sense as breaking it. That's why it's an other, because they are materially so low. Once any of those businesses becomes higher than 5%, then I think it makes sense for us to consider it. Right now, they are all clubbed in the other section.
I'm happy to, Harshit, take you to a specific diversification offline just to do justice to our time.
No, sure. I think that makes sense. Just one follow-up, Vital that so when we say 25% mix as a target, we include primarily SME into that. The SME lab as one product segment into that. I'm just trying to understand that if we need, if we more see the diversification today, that number, we should just look as the SME mix in the portfolio.
If you look at it today, I haven't given up the optionality or I haven't kind of told you about our, I mean, to be good at the right forum, options are open on whether mortgage comes into that mix. Clearly, right now, if you look at it, it looks a little, it looks a little aggressive with only SME. Read it with that optionality in place. There is, of course, a leasing business also that we have right now. There is a small PL business, which is just built over the last two years.
Got it. One just follow-up. Maybe I think you have mentioned that you want to discuss in the different forums, so that's fine. In case if when we look at our branch structures today, and if you want to expand more, when we look at the SME lab segment as a whole, what percentage of branches will be having this product right now of the 1,350-1,360 branches? Is there a room for branch penetration itself for that to grow much faster at this point of time?
Yeah. Again, unlike wheels business, the lab business is not such a distributed business. We do not need to do it out of 1,400 branches. We today do it, I do not know whether we disclose that number, but I mean, I can share we do it about 150-odd branches. We do not need to increase much more. There is a concentration in certain hotspots of the lab markets, and it makes sense for us to surround our branches, as you know, close to 1,400 branches. We have distribution in most of the hotspots. We do not need to unlock all the 1,400 branches for SME. The lab business is, as I mentioned, a little more concentrated business around certain hotspots.
Okay. One last thing, sir, that the disbursement in the others, the trade advances, that segment itself has been growing very fast. If you can help us, what is exactly driving that disbursement? Does the trade advances to dealers only at this point of time? This quarter, it was an INR 400 crore number, but that number has been shaping up well in the last two, three quarters.
Please do not read that as only, as I said, trade advances. There is farm equipment, farm implements, there is genset, there is personal loans sitting in there.
Trade advance is a part of it, isn't it?
Yeah, yeah.
Sure. Okay, sir. Perfect. Thanks a lot.
Okay. 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.
Thank you, everyone. I hope we have been able to cover most of your questions. As I said, it has been a year in reflection. It has been a year of moderate growth, but nevertheless, we have seen some positive outcomes in terms of keeping asset quality in our environment, which has been quite tough. We have kept that in a manner which we think is reflective of a resilient business. 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 inching upwards of 2% going forward, right? Not again of 2026, as I said, going forward. Thank you very much for joining us on the call, and look forward to being engaged.
Thank you. On behalf of Mahindra & Mahindra Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.