M&M Financial profit tanks 47.5% YoY to ₹235 crore, stock drops 11%

Mahindra & Mahindra Financial Services (M&M Financial) share price saw a sharp drop of over 9% on October 30, following disappointing Q2 FY24 results. The company reported a profit of ₹235 crore for the quarter ending September 2023, a decline of 47.5% compared to the same period the previous year.

Financial Performance

•    Profit Decline: M&M Financial reported a profit of ₹235 crore for Q2 FY24, showing a decline of 47.5 percent YoY due to increased impairment on financial instruments.

•    Revenue Growth: Revenue from operations for the same period increased by 24.1% YoY to ₹3,212 crore, supported by growth in the asset book.

•    Net Interest Income: Net interest income stood at ₹1,674 crore, reflecting a 9% YoY increase.

•    Net Interest Margin (NIM): Net interest margin for the quarter was 6.5%, impacted by higher borrowing rates and a shift in the portfolio mix toward customers with better credit quality.

•    Disbursements: Disbursements during Q2 rose by 13% YoY to ₹13,315 crore, despite challenges.

Subsidiaries

Mahindra Rural Housing Finance (MRHFL)

•    MRHFL reported a net profit of ₹11.6 crore for the quarter ending September 30, 2023, compared to ₹31.1 crore in the same period the previous year.

•    Income for the same period grew by 1% to ₹331 crore compared ₹328 crore during the same period last year

Mahindra Insurance Brokers

•    Mahindra Insurance Brokers posted a net profit of ₹28.6 crores in the July-September quarter, an increase of 365% compared to the ₹6.1 crores during the same period last year

•    Income of the company surged to ₹289 crore during the second quarter of the current financial year, compared to ₹94 crore in the corresponding quarter of the previous year.

Management's Perspective

The management predicts a partial recovery in net interest margins due to better yields. However, they expect a 100-basis point reduction in net interest margins to 7.27% in FY24. Also, they believe that the quality of their assets will remain stable, and costs related to lending will decrease. Despite a challenging outlook, they remain committed to their 2025 goals.

Stock Performance

At the moment of writing this article, the stock price of M&M Financial Services is down 11%. In the past month, the stock has dropped by more than 18%. However, looking back over the past six months, it has shown a positive return of 7%. Over the last year, the stock's value has gone up by 22%. However, if we extend our analysis to a 5-year period, stock has given a negative 6% return. From a technical perspective, the stock is currently in a bearish mode. It's presently trading around the 245 mark, and there's a possibility that the next support level could be found at around 230.

Final Words

M&M Financial Services faced a 47% decline in profits in Q2 FY24 due to increased impairment on financial instruments. However, the company shows growth in its revenue from operations and net interest income. The management remains committed to their long-term goals, despite the challenges in the financial sector and its subsidiaries, Mahindra Rural Housing Finance and Mahindra Insurance Brokers reported varying financial results during the same period.