Mahindra Finance Q3 FY26: Navigating Growth and Asset Quality in a Dynamic Market

Mahindra & Mahindra Financial Services Ltd. (MMFSL) has reported a robust performance for the third quarter of fiscal year 2026, demonstrating a visible step-up in profitability and continued stabilization in asset quality. The company, a leading non-banking finance institution focused on rural and semi-urban India, has successfully completed its 'Udaan' business transformation project, which is now yielding strong operational outcomes. This quarter's results underscore MMFSL's strategic pivot towards sustained growth, supported by disciplined execution and proactive risk management in a competitive market.

For Q3 FY26, MMFSL reported consolidated revenue from operations of INR 5,450 crores, marking a 14% year-on-year increase. The Net Interest Income (NII) grew by 14% year-on-year to INR 3,214 crores. Profit After Tax (PAT) for the quarter stood at INR 826 crores. Notably, the adjusted PAT, excluding a one-time labour code impact of INR 110 crores, was INR 936 crores. The company's Return on Assets (ROA) for Q3 FY26 reached 2.5%, with the nine-month ROA at 1.9%, indicating a positive trajectory towards its target of 2% and beyond. This improved profitability is a testament to enhanced operational efficiencies and strategic initiatives.

Asset quality has been a consistent highlight for MMFSL, with Gross Stage 3 (GS3) remaining below 4.0% for eight consecutive quarters. The combined Gross Stage 2 and Gross Stage 3 also stayed below 10% for the same period, reflecting robust collection efforts and effective risk management. Credit costs for the quarter were 1.3%, aligning with the management's target range of 1.5% to 1.7% for sustainable business operations. The company's capital adequacy remains strong at 19.8%, with Tier I capital at 17.4%, providing ample support for future growth initiatives.

Strategic Initiatives and Diversification Drive

MMFSL's strategic roadmap is centered on a 'Pivot to Growth,' leveraging the successful completion of its 'Udaan' business transformation. This initiative has streamlined operations, enabling paperless onboarding and enhancing multi-product and omni-channel customer journeys across 95% of its channels. The company is making significant investments in products, channels, systems, and capital to amplify growth and achieve its ROA objectives.

A key strategic move involves the evaluation of merging Mahindra Rural Housing Finance Limited (MRHFL), a wholly-owned subsidiary, with the parent entity. This move aims to scale up the mortgage business efficiently, ensuring cost-effective ROA outcomes and further diversifying the asset portfolio. MRHFL has shown a turnaround in asset quality over the last two quarters, with GS3 below 3%, making it a prime candidate for integration to unlock greater potential.

Diversification extends to the MSME segment, which has grown to approximately INR 8,000 crores in Assets Under Management (AUM) with strong year-on-year growth. MMFSL has ambitious plans for this segment, viewing it as crucial for reducing its current 90% dependence on the 'wheels' business and mitigating industry-specific volatility. The company is also proactively shifting its focus in the 3-wheeler segment towards electric vehicles, anticipating future market trends.

Market Dynamics and Future Outlook

While the quarter showcased strong performance, management acknowledged certain market realities. Competition remains acute, particularly in a declining interest rate environment, necessitating competitive pricing and potentially impacting loan income. Furthermore, a slight waning in demand momentum was observed post the festive season and GST benefits in certain vehicle segments. The Commercial Vehicle (CV) business also faces asset quality stress among some participants, leading MMFSL to adopt a cautious approach in this segment.

Despite these challenges, MMFSL is confident in its growth trajectory. The company aims for a loan book CAGR growth in the mid-teens to high teens. By FY30, the objective is to reduce the 'wheels' business mix in the loan book from the current 88% to 70%, with other asset categories expanding to comprise 12% to 30%. This strategic rebalancing, coupled with a focus on fee-based income from its insurance broking arm, MIBL, is expected to drive sustainable and diversified growth. MIBL, now a wholly-owned subsidiary, is a cash-generating entity contributing significantly to fee income and is not dependent solely on the M&M ecosystem.

MMFSL's commitment to financial and digital literacy is also evident through its 'Dhan Samvaad' CSR flagship program, targeting 1 million individuals by 2030. This initiative not only contributes to societal well-being but also aligns with the company's long-term vision of empowering aspirations and realizing potential across Bharat.

In conclusion, Mahindra & Mahindra Financial Services Ltd. is demonstrating strategic clarity and disciplined execution. By successfully transforming its operations, stabilizing asset quality, and actively pursuing diversification, the company is well-positioned to achieve its ambitious profitability and growth targets, reinforcing investor confidence in its long-term potential.