Mahindra Finance: Driving Growth and Asset Quality in Q2 FY26

Mahindra & Mahindra Financial Services Ltd. (MMFSL) has delivered a robust performance in the second quarter of Fiscal Year 2026 (Q2 FY26), showcasing strong growth across key financial metrics and a disciplined approach to asset quality. The company, a leading non-banking finance institution focused on India's rural and semi-urban sectors, reported significant year-on-year improvements, reinforcing its strategic positioning and operational efficiency.

On a standalone basis, MMFSL's Q2 FY26 disbursements reached ₹13,514 crore, marking a 3% increase from the previous year. Total Income surged by 14% to ₹4,489 crore, while the Net Profit After Tax (PAT) saw an impressive 54% jump, settling at ₹569 crore. The Assets Under Management (AUM) also grew by 13% year-on-year to ₹1,27,246 crore. On a consolidated level, the performance was equally strong, with disbursements at ₹14,491 crore and PAT climbing 45% to ₹566 crore. These figures underscore the company's ability to capitalize on market opportunities and enhance profitability.

Strategic Pillars and Segmental Performance

MMFSL's growth in Q2 FY26 was primarily propelled by its core 'Wheels' business, encompassing tractor, passenger vehicle, and used vehicle financing. Tractor disbursements witnessed a robust 41% year-on-year growth, driven by a buoyant rural economy and favorable monsoon conditions. While the first half of the fiscal year saw some muted activity, particularly in the Commercial Vehicle (CV) segment, the latter half of Q2 experienced a positive shift, especially in passenger vehicles, following GST announcements and the onset of the festive season. Management anticipates this momentum to continue into Q3 and Q4.

The company's diversification strategy also yielded positive results. The SME business demonstrated growth both quarter-on-quarter and year-on-year. Fee-based income, a crucial element of their diversification, increased to 1.4% of average assets, contributing to overall income expansion. Furthermore, Mahindra Insurance Brokers Limited (MIBL), now a wholly-owned subsidiary, proved to be a capital-light entity, generating cash for the parent company.

Asset Quality and Risk Management

Asset quality remained a key focus, with MMFSL demonstrating effective risk management. The overall Gross Stage 2 (GS2) plus Gross Stage 3 (GS3) assets remained contained at 9.72%, which is lower than Q2 FY25 and consistent with Q1 FY26 levels. Notably, the Stage-2 expansion decreased by 7 basis points compared to a 32 basis points expansion in the previous year, indicating improved early delinquency management. The company's collection teams were lauded for their performance, and new business onboarding aligns with their risk appetite.

A significant turnaround was observed in Mahindra Rural Housing Finance Limited (MRHFL), a key subsidiary. Following an Asset Reconstruction Company (ARC) transaction, MRHFL's GS3 fell below 3%, and its net Stage-3 is now closer to 1%, with the entity also reporting a profit for the quarter. This successful restructuring positions MRHFL for accelerated participation in the affordable housing finance segment, a strategic growth area for MMFSL.

Outlook and Strategic Vision

Management expressed optimism for the second half of FY26, anticipating continued momentum in the passenger vehicle and tractor segments. Passenger vehicles are projected to achieve 12% growth in H2 FY26, leading to an 8% blended growth for the full year, while the tractor segment is expected to see 18-20% growth in H2, translating to a 15% full year-on-year growth. The company aims to maintain its credit cost within 1.7% for the full year and expects the Provision Coverage Ratio (PCR) to remain around 54-55%.

MMFSL's strategic priorities include defending and growing its leadership in the wheels business, sustaining risk levels, expanding SME and fee-based income, and turning around MRHFL to grow affordable housing. The company is also focused on building a resilient operating model through efficiency gains, leveraging data, digital, and AI, and achieving stronger Return on Assets (RoA) and Return on Equity (RoE) outcomes. With a strong credit rating and a clear strategic roadmap, Mahindra Finance is well-positioned to capitalize on emerging opportunities and deliver sustained value to its stakeholders.