Mahindra and Mahindra Financial Services Limited
The common independent director on Crisil Ratings Limited and Mahindra and Mahindra Financial Services Limited boards did not participate in the rating process or in the meeting of the rating committee, when the rating for securities of Mahindra and Mahindra Financial Services Limited was discussed. This rating was also not discussed in the meeting of Crisil Ratings’ Board of Directors. Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale Crisil Ratings has assigned its ‘Crisil AAA/Stable’ rating to the Rs 10,000 crore Non Convertible Debentures and Rs 2,000 crore Subordinated Debt of Mahindra And Mahindra Financial Services Limited (Mahindra Finance). Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable/Crisil A1+’ ratings on the bank facilities and existing debt instruments of Mahindra and Mahindra Financial Services Ltd (Mahindra Finance).
Crisil Ratings has also withdrawn its rating on Rs.1125 crore non-convertible debentures, (see the ‘Annexure - Details of Rating Withdrawn' for details) on receipt of independent confirmation that these instruments are fully redeemed and at the request of the company, in line with its withdrawal policy.
The ratings continue to reflect the company’s majority ownership by, and strategic importance to, the parent, Mahindra & Mahindra Ltd (M&M; rated ‘Crisil AAA/Stable/Crisil A1+’). As Mahindra Finance remains the largest financier of M&M’s automotive and tractor business with strong dealer relationships, Crisil Ratings expects the financial services business housed in Mahindra Finance to remain strategically important to M&M. With extensive experience, expertise and penetration in rural and semi urban markets, Mahindra Finance is a key part of M&M’s growth strategy in these markets.
Crisil Ratings expects M&M to maintain majority shareholding in Mahindra Finance and exercise management oversight over the company to conduct its business in line with governance and compliance standards that all Mahindra group entities follow, including Mahindra Finance, honoring its debt obligation in a timely manner.
The rating also reflects the strong position of the company in the utility vehicle (UV) and tractor financing business in rural and semi-urban areas, its adequate capitalization and stable resource profile. These strengths, however, are partially offset by the company’s modest, though stable, asset quality. |
Analytical Approach For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of Mahindra Finance and its key subsidiaries, Mahindra Rural Housing Finance Ltd (MRHFL) and Mahindra Insurance Brokers Ltd (MIBL). While MRHFL is in the rural housing finance segment, a fund-based business, MIBL is in insurance broking, a fee-based business.
Crisil Ratings has factored in the strong support the company is likely to receive from its parent, M&M, on an ongoing basis and in times of distress
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Majority ownership by, and strategic importance to, M&M The ratings factor in the strategic, financial and operational linkages between Mahindra Finance and M&M. The parent participated in the rights issue in August 2020 following which its stake in Mahindra Finance went up to 52.2% from 51.2%. Crisil Ratings expects M&M to maintain majority shareholding in Mahindra Finance and exercise management oversight over the company to conduct its business in line with governance and compliance standards that all Mahindra group entities follow, including Mahindra Finance, honoring its debt obligation in a timely manner.
Mahindra Finance continues to finance around 44% of M&M Assets. Its market share in tractors segment was briefly impacted in the aftermath of the Covid-19 however, now it has revived. As part of its growth strategy, Mahindra Finance has been increasingly financing vehicles of other manufacturers which would impart diversity to its business channel.
Mahindra Finance has done two equity capital issuances in the past five years; M&M participated in both and had cumulatively infused Rs 2,696 crore into Mahindra Finance – demonstrating the strong financial and strategic linkages. M&M is expected to support Mahindra Finance on an ongoing basis and in case of distress, given the majority ownership, shared brand name and the strategic importance of the financial services business.
Prominent market position in rural and semi-urban areas, particularly in the UV and tractor financing businesses Mahindra Finance’s market position in the Utility Vehicle (UV) and tractor financing segments remains strong, owing to the operational linkages with M&M, which enables the company to access the parent’s widespread dealer network. The company finances consumer purchases of passenger vehicles (41% of gross business assets as on December 31, 2024), commercial vehicles (CV)/commercial equipment (CEs) (22%), tractors (11%), pre-owned vehicles (12%) and other assets. The company endeavors to diversify into, and increase its non-vehicle portfolio over the medium term.
In the last 2-3 years, the company has started to offer products such as small and medium enterprise (SME) loans, loan against property (LAP) and leasing. However, the company’s ability to profitably scale these newer portfolios remains a monitorable.
Over fiscals 2021 and 2022, the company had calibrated its growth strategy in light of macro-economic challenges, leading to overall business assets remaining almost flat at Rs 64,961 crore as on March 31, 2022. However, growth revived in fiscals 2023 and 2024. The overall business assets stood at Rs 102,597 crore on March 31, 2024. Disbursements in the first nine months of fiscal 2025 were Rs 42,370 crore which yielded a growth of 19% (year-on-year) in gross loan assets, taking this metric to Rs 115,126 crore as on December 31, 2024.
The company has considerably strengthened its distribution network: it had 1,375 branches across 27 states and 7 Union Territories as on December 31, 2024, with a large number of branches in semi-urban and rural areas, where it enjoys a strong market share. To leverage its existing presence in these geographies, Mahindra Finance has been expanding its rural housing finance portfolio through MRHFL.
Adequate capitalisation and stable resource profile Capitalisation continues to be adequate, as reflected in tier I and overall capital adequacy ratios of 16.4% and 18.9% respectively, as on March 31, 2024 (19.9% and 22.5%, respectively, as on March 31, 2023). Owing to the growth exhibited during the first nine months of fiscal 2025, Tier 1 and overall capital adequacy ratios declined marginally to 15.1% and 17.8%, respectively as on December 31, 2024. Networth was sizeable at Rs 19,219 crore, and gearing of 5.46 times, respectively as on December 31, 2024 (Rs 18,157 crore and gearing at 5.1 times as on March 31, 2024). Networth coverage for net non-performing assets (NPAs) stood at 8.5 times as on December 31, 2024. The company also declared a dividend of Rs 741.3 crore in fiscal 2024.
The company’s capital profile is also supported by its demonstrated ability to raise equity capital. In August 2020, the company raised Rs 3,089 crore of equity capital through rights issue, which resulted in improvement in gearing.
Apart from capitalization, the financial flexibility also benefits from the company’s stable and diversified resource profile and adequate unutilised bank limits along with its demonstrated ability to raise resources at competitive costs. As on December 31, 2024, the company had a fairly diverse borrowing mix consisting of 26.5% of NCDs, 6.4% of securitisation, 9.2% of fixed deposits and 48.3% of bank borrowings. Cost of borrowing was reasonable and is expected to remain better than industry average over the medium term.
Weakness: Modest, albeit stable, asset quality Mahindra Finance’s asset quality, though stable, remains modest. Gross stage 3 (GS3) assets stood at 3.93% as on December 31, 2024, compared to 3.40% as on March 31, 2024 and, 4.49% as on March 31, 2023. The improvement was primarily driven by sustained resolution and recoveries across buckets stemming from company’s efforts to strengthen underwriting and risk management and by revision in the Expected Credit Loss (ECL) calculation model used by the company. The company has also written off Rs 1,061 crore during 9M FY25 as compared to Rs 1,715 crore worth of write offs done in fiscal 2024.
The company continues to lay emphasis on collection and recovery efforts and Crisil Ratings notes that Mahindra Finance has shown ability to ultimately recover from delinquent accounts even post loan maturity date. Overall ultimate credit loss has been in the range of 1% to 3% over the past 10 years. The company's track record in the vehicle financing business, understanding of the target customer segment and robust underwriting practices are expected to support the asset quality metrics on a steady state basis. However, with newer portfolios scaling up, the company’s ability to maintain sound asset quality metrics alongside seasoning of these newer books, remains critical.
Credit costs for nine months ended December 31, 2024 were 1.3% as compared to 1.7% for the corresponding period of the previous fiscal. This was primarily due to lower loss given default (LGD) estimates stemming from the ECL calculation done by the company as of December 2024. In the December quarter of fiscal 2025, a pool of Rs 4000 crore originated in June 2021 got added to the stock of loans which are considered for LGD calculations. These loans pertain to the trailing 42-month period. As per the management, this newly added pool of June 2021 has exhibited better performance and thus, yields a lower loss estimate.
For fiscal 2024, net profit was Rs 1,760 crore translating to a RoMA of 1.7%, lower than Rs 1,984 crore of profit and a corresponding RoA of 2.3% for fiscal 2023. There were essentially three drivers behind the dip in RoA in fiscal 2024 – first, the company wrote back provisions in fiscal 2023, second, there was compression in net interest margins in fiscal 2024 due to the rising interest rates and lastly, credit costs for the year were higher.
For nine months ended December 31, 2024, the net profit and RoMA were Rs 1,782 crore and 1.9%, benefiting from a lower credit cost estimate and sustained interest margins. |
Liquidity: Superior With respect to asset liability management, there were no negative cumulative mismatches in any bucket up to one year as on December 31, 2024. The liquidity position (Cash and equivalent and other liquid assets) as on February 28, 2025 in addition to scheduled inflows for the following 2 months is sufficient to cover the debt obligations over the same period. Moreover, in Crisil Rating’s view, being a part of the M&M group, additional liquidity support will be available to the entity as and when required.
Environment, social and governance (ESG) profile Crisil Ratings believes the ESG profile of Mahindra Finance supports its already strong credit risk profile.
The ESG profile of financial institutions typically factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base. While the sector does not have a direct adverse environmental impact, lending decisions may have a bearing on environment and other sustainability factors.
Mahindra Finance has demonstrated focus on strengthening various aspects of its ESG profile.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The company’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high share of foreign investors as well as access to both domestic and foreign capital markets. |
Outlook: Stable Crisil Ratings believes Mahindra Finance will benefit from the support it is expected to receive from M&M, given the majority shareholding of, and Mahindra Finance’s strategic importance to, its parent. Crisil Ratings also believes the company will maintain its strong market position and adequate capitalisation over the medium term. |
Rating Sensitivity Factors Downward Factors:
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About the Company Mahindra Finance, a non-banking financial company (NBFC), was incorporated in 1991. M&M, the majority shareholder, held 52.2% in Mahindra Finance as on December 31, 2024. Mahindra Finance ranks among the larger NBFCs in India with gross loan assets of Rs 1,15,126 crore as on December 31, 2024 (Rs 1,02,597 crore as on March 31, 2024). The company finances consumer purchases of UVs, LCVs, tractors, cars and other assets. It has recently started offering products such as SME loans, LAP and leasing. To leverage its extensive branch network and rural clientele, the company has entered the rural housing finance business through its subsidiary, MRHFL. MIBL is the insurance broking arm of Mahindra Finance, providing insurance broking services both in the life and non-life segments.
On consolidated basis, total income and net profit were Rs 15,970 crore and Rs 1,943 crore, respectively, in fiscal 2024, against Rs 12,832 crore and Rs 2,071 crore, respectively, in fiscal 2023. For 9MFY25, total income and net profit were Rs 13,633 crore and Rs 1,805 crore, respectively.
On standalone basis, the company reported profit of Rs 1,760 crore on total income (net of interest expense) of Rs 7,135 crore in fiscal 2024 (Rs 1,984 crore and 6,479 crore, respectively, in fiscal 2023). For 9MFY25, total income (net of interest expense) and net profit were Rs 6,021 crore and Rs 1,782 crore, respectively. |
Key Financial Indicators (on a standalone basis)
*on business assets ^as per Crisil Rating’s Standard Calculation Methodology |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^not yet issued/ availed
Annexure - Details of Rating Withdrawn
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Annexure – List of entities consolidated
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