M&M Finance Q1 results: Co reports loss of Rs 1573 cr as bad loans, slowdown bite

Mumbai: Mahindra and Mahindra Financial Services (M&M Finance) slumped to a loss in the first quarter ended June 2021 reflecting the severe impact of the second wave of the Covid pandemic on the semi-urban & rural markets, the main area for the company's operations.

M&M Finance swung to a loss of Rs 1573 crore on a consolidated basis during the quarter ended June from a profit of Rs 432 crore a year earlier, as total income declined 16 per cent to Rs 2567 crore from Rs 3069 crore the year earlier. The company also tripled provisions on bad loans to Rs 3005 crore in June 2021 from Rs 949 crore a year earlier as non-performing assets (NPAs) rose, impacting profits.

Loans book declined 3 per cent to Rs 78,955 crore from Rs 81,436 crore last year.

"The company works largely with the earn and pay segment. With substantially lower people movement and impact on economic activity, the customers’ ability to use their assets and earn from them was severely impacted. This resulted in lower cash flows at their end. The impacted segments largely were tourism, taxi operations, school bus operations, contracting segment and heavy goods movement," M&M Finance said in a press release.

Restricted movement during the quarter also hit loan collections as well as disbursements.

Loans disbursements rose 42 per cent year on year due to a favourable base effect from last year but were down 35 per cent from its March quarter.

Gross NPAs shot up to 15.5 per cent of loans from 9 per cent in March and higher than 9.2 per cent last June.

But the company said that the elevated NPA’s are not a reflection of any credit risk increase but are purely delays caused by a crunch in the liquidity situation of customers which will reverse later this fiscal.

"Our experience in the past has always shown a return to normalcy by these segments of customers once their earnings stabilize. The company, recognizing the market conditions and being conscious of the likely third wave of covid has continued prudently with higher overlay provisions. Our understanding is that, as the market conditions normalize over the next few quarters, your company should benefit both on the Business and NPA reversal fronts," M&M Finance said.

However, investors were disappointed with the results as the company's stock price lost more than 5 per cent of its value to close at Rs 146 per share on Monday.

The company hiked its provision coverage to 53.7 per cent of gross NPAs from 40.1 per cent last year.

The company increased its provision based on expected credit losses to Rs 2,733 crores in June 2021 from Rs 2314 crore in March 2021 to reflect deterioration in the macroeconomic outlook and uncertainly in credit evaluations.

"The final impact of this pandemic is very uncertain and the actual impact may be different than that estimated based on the conditions prevailing as at the date of approval of these financial results, The management will continue to closely monitor the material changes in the macro-economic factors impacting the operations of the company," M&M Finance said.