Mahindra & Mahindra Financial Services Limited (MMFIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mahindra Finance Limited Q2 FY '26 Investors Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal from Axis Capital. Thank you, and over to you.

Thank you. Good evening, everyone, and welcome to the earnings call of Mahindra Finance. Today with us, we have the management team led by Mr. Raul Rebello, MD and CEO. Along with him, we have Mr. Pradeep Agrawal, CFO; and Sandeep Mandrekar, Chief Business Officer. I would request Mr. Rebello to share his initial remarks, post which we'll open the floor for Q&A. Over to you, Mr. Rebello.

Yes. Thank you, Praveen, and good evening, everyone. Thank you for joining us on the quarterly call -- earnings call. I'll keep it brief and have maximum amount of time for Q&A. I request you, as always, to keep the document handy because we will be referring to specific numbers and commentary, which we have shared earlier in the evening. So diving straight in, if I were to guide you to Page #4, titled key priorities. You would see this slide; it's a similar slide we put it up every quarter. So number one, on the progress on defending and growing our wheels leadership, as you know, this is our crown jewel business. And while we participate predominantly in the passenger vehicle, tractors, CV and used vehicle business, I think fair to note that though Q1 was muted, the later half of Q2 after the GST announcements has definitely seen a positive movement even beyond Q2 because October is -- well into October. And with this positive development and the whole festive demand, which I think has been well covered, we do see and as a beneficiary of all the increased momentum we are going to witness and expecting this to continue into Q3 and some part of Q4. So our play in the wheels business, we do believe we are well positioned to ride the tailwinds of that momentum. The second part on the key priorities, which is on margins -- growth and margins. You would have seen in our Q2 results, we did share with all of you our aspiration to climb up from the 6.5%. We had started moving up, but this quarter has seen a very positive momentum to 7%, aided by both cost of funds and some kind of income level enhancements but I will spend more time on NIMs to just set the right expectations as we go deeper in the document. The third agenda on risk and asset quality. I would say the environment in Q2 always is historically a challenging quarter and usually, we see from Q1 a steeper climb up. But I think our teams have done a good job this year. If you look at the overall GS3 plus GS2, it's remained even lower than last year Q2 at 9.7%. In fact, it's remained same as Q1 levels, the GS2 plus GS3. Moving to diversification. Our SME business, which is largely the part of the diversification that we do right now, has grown both quarter-on-quarter and year-on-year. And our fee-based income, which we had called out as part of the diversification strategy is now up and it's 1.4% of our average assets. Along with the main NBFC, we did call out one of the other asset-focused subsidiaries, which is the Rural Housing Finance company as a key turnaround agenda for us. And I'm happy to note that in the quarter gone by, we have concluded an ARC transaction, which means that the HFC today from a GS3 is below 3% and even from a net Stage 3 is closer to 1%, while also posting a profit for the quarter. I request you to move to now Page #5, which evidences what has been growing in terms of disbursement within our overall asset categories. What you would see clearly is what's driving growth is the tractor business. You're aware that the rural economy is doing much better and aided with a lot of tailwinds of stable rains and I mean, there's now, of course, the problem of unseasonal rains in some places. But overall, price discovery in rural still is positive, and that is a positive for us, both in collections as well as demand in tractor. Our own tractor business has grown Q2 this year over last year by 41%. Used vehicle -- the rest of the vehicle categories have been reasonably flat, so 4% for the used vehicle business, PV at 1%. Fair to say that because the whole festive demand this year is different than last year. I think last year, we were looking at festive period mostly October, November, this year, September, October and parts of November too. Q2 wouldn't have seen the real uplift of the festive season because essentially, the Navratra (sic) [ Navaratri ] started on 22nd. We did get some later half of September action but you all know from August onwards, with the GST announcement, there was largely a lull before the 22nd demand has started picking up. Again, referring to Page #6, 7 and 8 now. AUM growth is at 13%, income growth at 14%. Now getting into NIM expansion, and you can look at Page #8 for this, the overall NIM expansion has moved from 6.5% to 7% Y-o-Y. Now what are the levers over there? So overall income has gone up by 10 bps to the -- the total income by average assets by 10 bps from 12.9% last year to 13%. And lifts over here have come from fee-based income, which we talked about as well as now a steady state every quarter ever since we have got our wholly owned subsidiary, MIBL, it was earlier partly -- I mean, it was still majority owned but now it's a wholly owned subsidiary. A very capital-light entity doesn't require more -- it's throwing up cash for us. So we are taking regular dividend into the NBFC from that entity, and we will continue to do this. So both the dividend income as well as the fee-based income is creating an expansion into our overall income by average assets. The other big lift in terms of NIM has come from clearly COF, which has moved both quarter-on-quarter and year-on-year by 30 bps. Now you would be aware that the rate environment has been favorable. We have shared in the past, we have a significant amount of our borrowings, which is floating, and we have majority of our lending, which is fixed. That does give us an advantage. Also considering we just had the rights issue; it is a positive for us because the leverage is lower at the moment. And hence, I would say right now, the NIM has benefited from both these 2. Overall, when you look at OpEx to average assets, et cetera, that's been largely flat. So no major commentary on that part. Moving to Page #9, which is a half yearly number versus last year. I think these numbers more or less are going in tandem with the Q2 numbers. But since Q1, we didn't have this -- the same level of high PAT growth. So overall, for half year, we are looking at a 25% PAT growth from last year of INR 1,100 crores. I request you to move now as I move my commentary to asset quality and credit cost to move to Page #10. Here, I would say, we are reasonably happy with the way in which our asset quality has panned out for Q2. And why I say that is if you look at the past Q2 over Q1, you would see that historically, we have climbed up because the operating environment gets tough with the monsoons that come in with the kind of cash flow crunch that happens with the semi-urban rural customer segment. Just for reference point, last year between Q1 and Q2, the GS3, the volume GS3 movement, as you see in Slide #10, moved up by 27 bps. That number has moved up only 9 bps this year. Also very encouraging is Stage 2, which had a 32 bps expansion last year between the 2 quarters has actually fallen by 7 bps. So overall, our GS2 plus GS3, which we mentioned at 10.26% this year is 9.72%, which is, in fact, a reduction from last year's Q2 but also importantly, versus a 60 bps increase last year between GS2 and GS3 is just a 2 bps increase. So our collection teams have done a reasonably good job. And we are also having -- we've been onboarding a book, which we think is commensurate to our risk appetite, which is showcasing both the GS3 as well as the GS2 improved outing for us. The last slide I'll spend time on is Page #11, which gives you the breakup of credit cost. On credit cost, again, looking at the last 2 years trend, Q2 because of GS3 movements, et cetera, we have always historically had a higher credit cost in Q2 over Q1. And credit cost is influenced, as you all know, by provision and losses. Provisions, I spent time talking about what goes into provisions is the stock, which is the volume, not seen any change there. But what also plays a role is the PCR cover and the PCR cover, as you know, we benefited last year. There was a climb down from our elevated levels. But I'd also guided saying that we don't see our PCR cover growing more than 54%, 55%. We have climbed up in our PCR cover between Q1 to Q2 from 51.4% to 53%, and that's driven some of the provision for the quarter. But overall, the controllable variables, which is GS2, GS3 has been very strong. So that's largely the overall commentary on growth margins and risk. On balance, I would believe it's a decent quarter, positive recovery on margins, asset quality kept range bound and a hopeful view that we have of how H2 is going to play out. All that I can say is watching the volumes that we have seen in the recent past and some of the encouragement from GS2 -- sorry, from the GST 2.0, we do see some demand coming back, specifically for a vehicle player like us, specifically embedding growth in passenger vehicle, seeing very strong tailwinds for tractor. And CV not so much, but clearly a departure from H1. We do expect to see continued momentum, which will augur well for us in H2 of this year. I'll pause here and open it up for Q&A.

[Operator Instructions] We'll take our first question from the line of Mahrukh Adajania from Nuvama.

So my question was just on the ECL working. So would it be fair to assume that the base would be somewhere on September 2020, that would be the referral base, is that why the credit cost looks very high, though your asset quality seasonally has actually seen improvement? And then if the base is adverse, does it continue into the next year as well as we roll forward? So that's the -- so I had a question -- that was my question on ECL.

Yes. So Mahrukh, thanks for the question. I didn't hear the second part but let me first answer your first question. As you know, we take -- for the LGD computation as well as ECL, we take a 42-month period. So the stock that would have been isolated to watch a 42-month would have been the March '22 stock, which would have performed over a period of 42 months. And that's the number the PCR cover based on the LGD movement over there. But having said that, we are -- every year, we do an ECL model refresh in Q3, where we look at basically the ECL being the pure reflection of what should be the coverage that we maintain, which clearly should be closing -- should be mimicking the LGD that the portfolio should be more reflective of the LGD of the portfolio. What was your second question? I didn't hear that.

No, my second question was about the base next year, like when you do the -- but now it will be this year itself, right, because you will refresh the ECL in March. So...

Okay, let me refresh the ECL in Q3, which is...

Sorry, in December, yes. So basically, the base is adverse is what I'm asking.

We can't call it the basis that was because our earlier businesses, the stock of GS3 would move between quarters, that becomes a new base to calculate the 42 months. So it's the recovery over that period of 42 months from when that now the March base will move to the June base of '22.

We'll take our next question from the line of Raghav Garg from AMBIT Capital.

I just have a couple of questions. One is, if you can give me the number for the dealer funding book for the quarter? I am asking this because I want to understand...

Raghav, can you be a little bit louder?

Yes. Can you hear me now?

Better.

Okay. I just wanted to understand what is the dealer funding book for the quarter. I suppose that Q2 is where you do a lot of dealer funding because that's generally the trend. So I just wanted to know what is the outstanding on that front. And is that why that there has been some impact on the yield? If you adjust for that, maybe the yields will be a little bit higher than what has been reported during the quarter?

Yes. Raghav, your observation is right. Q2 does see us helping dealers get to their inventory stock up. So as you know, the season was up in September, and many of them were stocking up before that. So trade advance does play an important role for increasing our retail business. In the ballpark of about INR 6,800 crores would be the trade advance limit. And hence, yes, that could have a slight drag because that comes in at -- I mean the yield on that is not there. So that does have a drag to some extent on the Q2 numbers.

Understood. Another related question is, so I did some calculations based on disbursement data and the outstanding figures for the passenger vehicle loan. It appears that the repayment rates have come down. Is that also because of this dealer funding book, the trade advances of INR 6,800 crores?

Sorry, can you repeat that? That passenger vehicle...

Yes, passenger vehicles. So given your data on disbursements and also the amount outstanding in passenger vehicle segment, the repayment rates look lower versus what the trend has been. Is that because of the trade advances?

Yes, that's the right observation.

Okay. And then to that extent, has there been some reclassification because I've not seen that happening in the past quarters in 2Q, where the repayment rates have come down as much or as significantly as they have in 2Q this time?

No, I don't think we have changed any classification.

Sure. Understood. Understood. What was the trade advances number in the same quarter last year?

I'll have to pull that out. Can I get back to you on that? I don't have it handy.

No problem. Yes. Just last question from my side. I think last quarter, you had mentioned some pain in the M&HCV segment, and you were trying to work your way around it. How is the situation now? I think you also mentioned that there is some departure from what you saw in the CV segment in 1H. It may not be a material improvement, but it appears that you sounded a bit more optimistic than what you were saying in 1Q. Any thoughts on whether things are improving for fleet operators...

Sorry to interrupt. Raghav, the management line is disconnected. Request you to stay connected please while I reconnect them. [Technical Difficulty] Ladies and gentlemen, we have the management team back on the line. Raghav, can you repeat your question, please?

Yes, sure. So my last question was if you can give your thoughts on what is your asset quality outlook on the CV segment? I heard you say on the call that -- or in your opening remarks that 1H, there could be a departure in 2H from what you saw in 1H. It appeared that you sounded a bit more optimistic on the CV segment. So I just wanted to understand what are you seeing on the ground with respect to that? That's all.

Yes. Thanks, Raghav, and everyone else is on the call, apologies from our side. Our landlines have -- so I'm taking the call on my mobile. So Raghav, I'll just rephrase what I mentioned was H1 has not baked in the entire season effect because you only had volumes coming in from September 22 onwards, whereas there was a big lull before that because ever since the GST new rates were announced from August 15, we saw a little bit of a completely muted environment. I said H2, just going by how end of September and October, we're well into October has played out, we do see a huge -- huge is a little bit of an overstatement but we do see a good amount of H2 volumes that could come in, which will benefit us both from a PV standpoint and a tractor standpoint. On the CV, I said, I don't share the same enthusiasm because we haven't seen the same clip of growth that we have seen now in the festive season for tractor and PV, rub off on the CV segment, too. There is definitely a benefit from Q1 levels but I don't think that, that level of momentum is -- can be ascribed to the CV segment, at least for the segments we participate in.

We'll take our next question from the line of Renish Bhuva from ICICI Securities.

Congrats on a good set of numbers. Just 2 things. One, again, sort of coming back to the credit cost part. So obviously, sequentially, we did see a little higher credit cost. But if you look at this quarter in particular, credit cost being at 2.2% with similar write-off and marginal higher PCR, which essentially means that the roll forward from GS2 to GS3 will be higher. And if that is the case, then how confident you are that in second half, we'll be able to contain credit cost within guidance range of 1.7%.

Yes. Thanks, Renish, for your question. See, we have mentioned that it is our business model objective to keep credit cost within 1.7%. I mean for the full year, and if you go back to our past also, quarter 1 and quarter 2 always is a slightly higher level, and we are able to demonstrate and execute a reasonably better Q3 and Q4. Standing right now at the end of Q2, I do believe that what we executed on Q2 was reasonably good considering the overall environment. Am I changing my posture from the 1.7% guidance? No, I think we'll be able to, with the variables at play, whether it is the stock of GS2, GS3 as well as the PCR cover with whatever we have visibility on as well as the end losses that we are currently tracking. I'm not changing my guidance of going above 1.7% as our stated credit cost.

Got it. Got it. This is very helpful, sir. Secondly, on the growth side. So used vehicle has been one of the key growth driver in recent past. And of course, disbursement has also up by 14%. So just wanted to get some sense what is driving this growth? And also what percentage of business comes from the Mahindra First Choice?

Yes. So see, used vehicle, just to put in context, I think we -- it used to be about 16%, 17% of our incremental disbursements because of the ROA accretiveness of this business, it's now closer to 18%. For us, the used vehicle business is a combination of our own customers. We have a good base of -- we have funded -- our live customer is about 22 lakh but we have funded, I think, close to 10 million odd, 11 million-odd customers. So we harvest that base for top-up loans and for -- on used on those vehicles, right? So we have a good base of our existing customers as well as we do it from the open market, which is through First Choice, through multiple other, you could say, aggregators, both online and offline. We are clearly cognizant of the fact that with the price cut, which has happened on the new vehicle, there will be impact on the used vehicle. There are also associated risks. So we will have to calibrate all of that in our going-forward business plan, which we've already done some early steps. But is it a segment that we will continue to be invested in? The answer is yes. I can't give you specific how much we do through First Choice and other aggregators. But they are in the top 2, 3 aggregators that we work with.

Got it. Got it. And just a follow-up on that. So as you rightly pointed out, the GST cut has led to the new vehicle price cut and eventually, your used vehicle prices will also come down. So now considering both these things, do you foresee any risk to vehicle finance growth for FY '26? Or do you feel volume will by and large offset the price cut?

So far, what we are seeing is, of course, festive season exuberance. But at least from the various channels that we work in, we think there will be a good -- the volume growth will maybe offset some of the value or the price reduction, which has happened. Also, what we are seeing is there is a premiumization play, which is happening. Many of the customers who are buying vehicles are moving towards higher variants, et cetera. So both are playing out. Customers who are sitting on the fence and not buying vehicles, they are entering the small car segment and the entry level. And customers who are earlier in the mid-segment are now driving the premiumization and buying. So we do think that there is a good impact of -- overall impact of the GST 2.0 in the fortunes for overall FY '26.

Got it. And this is true for used and new both or this is more for new. I mean this time...

Used is a little too early to say. Used, I mean, the season is usually November, December onwards. We will watch it as it goes forward.

[Operator Instructions] We'll take our next question from the line of Shweta Daptardar from Elara.

Sir, 2 questions. The first one, sir, sorry for harping on the credit cost again. So because you mentioned that the reset will happen now in Q3. So where do we see the credit cost in the near term? And do we still see 1.7% in Q3?

Yes, Shweta, to answer your question on credit cost and the ECL reset, see the ECL reset is an annual exercise where the objective of the ECL reset is to kind of make the model reflect the underlying nature of the portfolio, right? That's always why we do a reset to ensure that the ECL is reflective of LGDs, and the overall provision cover that we need to maintain. I don't want to sit in Q2 and create a hypothesis of what will come out in Q3. It's a very detailed exercise we do every year. But still observing what goes into play because that clearly has an impact on LGD, PD. But even with LGD, PD and the PCR cover, the other variables are the GS3, GS2 stock as well as the kind of write-offs and the settlement losses. I reiterate that I don't see a hazard to the 1.7% cap in credit cost right now sitting here. Annual -- I'm talking about annual.

Annual, yes. Perfect. That's helpful. Second is because you made a fleeting mention of diversification. So where do we see the non-wheel share as the overall -- as a share of overall AUM going forward? And besides SME or including SME, which will be -- which portfolios will be the key levers?

Yes. Right now, SME has grown from maybe a share of -- it's been at 5% but it's growing at a Y-o-Y clip of, let's say, 12%. We've also did some kind of edits in our SME geography strategy last quarter. SME is a new segment. But overall, I think from an asset category, we continue in the wheels business to look at all opportunities of growth, over-indexed clearly on PV, tractor, used vehicle and some segments of the CV segment. These are our mainstay businesses. SME is a new business. And as I mentioned earlier, a very big category of -- on the lending business is the mortgage business, which we currently participate through MRHFL, which is our HFC. We have plans to accelerate our participation in housing finance but we didn't want to do that without first setting the house in order, and that's why getting that organization and the mortgage to be in a respectable asset quality zone was the prime objective. And now that we have the mortgage business also under 3% GS3, we did share with you we have got some good talent, and we have equipped the teams now to look at mortgage as an important swapping category for driving growth in the near future.

Next question is from the line of Shubhranshu Mishra from PhillipCapital.

Just one question and [Technical Difficulty]

I'm sorry, your voice is sounding muffled. Can you use your handset mode, please?

I'm on the handset. Can you hear me better?

Not really. Can you try asking the question...

Just wanted to understand the [Technical Difficulty] So how do we look at the passenger vehicles? Are we still seeing the kind of dominating the demand is on the small commercial vehicle demand?

Shubhranshu, I'm sorry, I'm hardly able to hear you. I don't know whether -- Operator, can you hear Shubhranshu?

Yes, he is sounding muffled. No, he is sounding muffled.

I will come back in the queue. No worries, I will come back in the queue.

Next question is from the line of Piran Engineer from CLSA.

Congrats on the good set of numbers. Firstly, I have one clarificatory question to ask. On the trade advances, did you said INR 600 crores to INR 800 crores?

No, no, INR 6,800 crores.

INR 6,800 crores?

Yes, for the festive season.

Okay. What would the corresponding number be last quarter, closer to INR 4,000 crores, INR 4,500 crores?

Previous quarter?

Yes.

I'd have to pull that about maybe...

But if you want to make a sense of the jump...

Yes, closer to INR 4,000 crores, yes.

Okay. Okay. Then that clarifies it. And you also, to that question, alluded, this will be part of the passenger vehicle book.

No, no, no. This is separate book.

No, no -- yes, it should be in other -- I think Raghav asked you about that calculation of repayment rate. And I think the conclusion we got was that it's part of the passenger vehicle book. When he said, the book has grown stronger than the disbursements and therefore, it means repayment rate is lower. I just wanted to check that.

No, I'm not able to get what was the confusion.

The trade advance book of INR 6,800 crores is part of others and not part of passenger vehicles.

Absolutely. If you're referring to Page #14 -- if you're referring to Page #14, Piran. It is part of the others within asterisks.

Yes, 14, yes. Okay. Fair enough. So that was the clarification. Now getting on [Technical Difficulty]

I'm sorry, you're sounding muffled.

Am I better now?

Yes, yes. Please go ahead.

Okay. So just getting back to my questions. Firstly, you've done a good job on Stage 2 and Stage 3 in this first half. How do we think about this trajectory in the second half simply because in the past, Mahindra Finance has been that the first half is bad and then the second half recovers because the first half was bad. Now given that the first half is not so bad, is it fair to say that the recovery also will not be so sharp, if you get what I'm trying to say?

See, I think, Piran, we are trying to keep stability in mind. You're right because any time if the base gets higher, then the recovery is from that higher base. This time, our objective was to reduce the inter-quarter volatility. I think many things go into that. One is the onboarding strategy, two is the collection strategy. But end of the day, we are not lending to super prime customers. We do lend to a lot of self-employed customers who have cash flow mismatches. So we will have to be on the ball in terms of our collection for the remainder part of the year. We can't let or lose sight of that. Having said that, I don't think everything is -- no one can say that the environment is super rosy. There are still challenges. I mean you're seeing unseasonal rains in different parts of the country. So within all these challenges, our job is to make sure that we execute well and keep the GS3, GS2 range bound. As you said, for us, that number is more reflective of being below 10% GS2 plus GS3. That's the objective to keep it at least in the -- across quarters. Some quarters do end up being more challenging, especially quarter 2, and we at least feel reasonably happy with what the teams have achieved in quarter 2, keeping it range bound. And that will be the objective to see Q3 and Q4 also follow that trajectory, keeping it range bound and possibly go down in Q4. Q3, I don't think we'll be able to reduce very drastically but Q4 definitely has more upsides than Q3.

Understood. And just secondly, on our cost of funds. Now we've seen some improvement in the last quarter. Assuming no further rate cuts, how much further decline is possible?

See, I think fair to say Q2 was a good quarter because, as I mentioned, we have got certain benefits from the rates, which are flowing down to us in our borrowing cost. But as we start consuming more capital now, the INR 3,000 crores all came in, in Q2, right? So that leverage also was lower. As we state disbursements grow up, so I think it won't be a big -- cost of funds will not really be a big beneficiary going forward.

Next question is from the line of Prithviraj Patil from Investec.

So my question is on the subsidiary. I just wanted to have a sense of whether the employee rationalization is complete at the housing subsidiary. And if also you could throw some light on the ARC transaction there.

Yes. So we continue to find more efficiency gains as we go ahead. As you would notice, it's already climbed down pretty steeply from exit of -- I mean, let's say, H1 of last year, we were INR 6,300. We are down to INR 4,700. As we get into more growth in affordable housing, we have stopped doing, of course, as you know, the very small ticket rural housing finance or the rural home improvement loans. So we don't see this number increasing for sure. We will try to get more and more efficiency. Can it go down a little further, maybe marginally lower. And the objective is to run a very efficient housing finance franchise. On the transaction, I don't -- won't go into the minute details. But yes, this was a portfolio that we -- which was mostly a GS3 and written-off portfolio, which we got off our books at a price which there are certain confidential about it. We can't disclose the exact price, but we did provide for it fully. And hence, as you see, the net NPA number has not moved so much, but the GS3 has come down reasonably well.

Got it. And a follow-up on another subsidiary, the idle finance subsidiary. So I just wanted to know what was the long-term strategic vision of entering into Sri Lanka? And what's the split there between gold loan and vehicle finance.

See, when we look at overseas markets, we generally follow where there is a stated capability for us to ride on the auto business, like we do in U.S. with the tractor business. In Sri Lanka, we went in because we had a strong CV business with the M&M group over there. While because of certain import restrictions, et cetera, we had to diversify into gold just to make sure that we have a franchise which is able to leverage its participation there. It's about a 50-50 participation right now in gold and vehicle business. And as you would see from the financials, it's in an improving trend.

We'll take our next question from the line of Kunal Shah from Citigroup.

A couple of questions. So firstly, with respect to write-off, if we still see the write-off quantum continues to be upwards of INR 400-odd crores, I think this is the number, which you mentioned like you would want to continue it. So how should we see this trend going forward, particularly in the second half and getting into FY '27?

Yes. So Kunal, as the book grows also, the number will be a percentage of the assets, as you know. While yes, it is higher than we possibly want it to be. But overall, within the credit cost of 1.7%, this number should be between 1% to 1.2%. That's a number, I think, is a reasonable number for the business model that we run. In some quarters, we will try to dispose more assets, which will flow through the end losses, right? Because end loss is a combination of what we write off as well as settlement losses that we taken after selling the assets.

Sure. And secondly, on the growth guidance. So you also indicated that there should be the positive effect of maybe the gained momentum plus maybe we might accelerate SME mortgages. So now looking at the traction in the second quarter, which was more towards the -- maybe the last month or maybe the last week, how should we look at the overall growth settling for FY '26 now? Is it like the rural balance sheet plus GST giving us more confidence to grow better?

Yes. So again, drawing from what the OEMs commentary are also, and I'll maybe -- I'll not go into specific Mahindra Finance. But if you see before the GST 2.0 came into being, the guidance from the community, let's say, from a passenger vehicle was more closer to kind of a 5-ish kind of a year-on-year growth. I think that number because of the momentum we are seeing in H2, passenger vehicles is pretty much now expected to, I would think across OEMs be a more 12% growth in half year 2 versus a 4% growth in half year 1, which means at a blended rate, there's an 8% growth in passenger vehicles, I would think versus what was 5% earlier before GS2 came to be. And you know 40% of our book is in passenger vehicle. So we will ride that growth which is happening because we participate across OEMs, and we also have a decent participation in the small car segment. Similarly, in the tractor, half year 1 was -- and I'm not saying Mahindra Finance, half year 1, as I just look at the [indiscernible] data and all was more 10%. I think what volumes we are seeing here is half year 2, my estimation is we could see more an 18% to 20% growth, which would mean full year-on-year growth of 15%, and we are a major player there. And the tractor growth by OEMs were earlier more in the 8% to 10%. So there's a clear uptick there, too. CV, I wouldn't comment so much because I don't think CV share the same enthusiasm. So with the volume growth, of course, there will be a value deflator. But overall, GST 2 should kind of bring in more momentum to us to a player like us to see and give us more confidence on disbursement growth, which will flow into book growth eventually.

Yes. So maybe while this quarter would still have the trade advances benefit, as you indicated, INR 2,800-odd crores was the delta on a quarter-on-quarter basis. But otherwise, ex of that, should we still see like 4%, 5% sequential momentum coming through? Or would be very confident, say, getting into Q3 and Q4 at those levels?

Yes. So there will -- sorry, there will be some adjustments from the trade advance into adjusting for retail volumes. But even now seeing the momentum even after Diwali into October and the activity at many dealers, I do believe that Q3 will sustain disbursement growth.

Next question is from the line of Jay Betai from Nirmal Bang Institutional Equities.

Am I audible?

Yes, please, go ahead.

Just, again -- I mean -- just wanted some highlights. Can you just give us a split between your used CV vehicles versus your new CV vehicle disbursement.

Jay, just to be fair to the disclosures that we do, we can do it. We are doing an Investor Day kind on November. We can take your acquisition. Urmi, can you just take that? So I just want to be fair that we give these disclosures not in a selective manner. So I'm sorry, I'm not able to kind of give you that level of detailing right now.

Sure. No worries, sir. And secondly, sir, one of your peers, they had highlighted there were a few stress pockets across the Eastern and the Northern regions. Were you facing a similar kind of delinquencies there?

See, the disruption was very high in North and East with the unseasonal rains and part of East was closed because of agitations in some states, in Q2, specifically Assam -- sorry -- yes, yes, that Assam. So I would not dispute the fact that there was disruptions in North and East. And yes, it would have kind of led to some amount of stress in the GS2, GS3 buildup. But again, collection teams have to manage within all these constraints.

Next question is from the line of Harshit Toshniwal from Premji Invest.

Sir, am I audible?

Yes, yes, you're very audible.

Sir, 2 questions actually. One is on the disbursement growth, sir. And if I, for example, specifically look at the PV segment itself. Now...

Can you be a bit louder, please?

Yes. Sir, when you said that 12% is probably the volume growth, which we'll see for most of the OEMs. But if I offset it with 5% to 6% of the price decline or basically the ticket size decline because of the GST, then would it be right to say that for us and since we are already a large part of the market, the disbursement growth in passenger vehicles specifically crossing that 8%, 9% hurdle on a value basis is not going to be a realistic assumption. And in that case, which is I just wanted to get your sense, sir, that even if the volume growth remains, will the disbursement growth be on a Y-o-Y basis, will we see that high disbursement growth getting converted? That was the first question. And the second question was, sir, that when I look at the 1.7% credit cost guidance, now in FY '25, we saw some bit of ECL model showing lower coverage that helped us reach that 1.7%. But if I look at practically for a 10% GS2 plus 3 book, our credit cost on a more steady state basis should be around 2%. I mean, probably is it that for a 55% if you want to fix up a 55% PCR and then move around what is a sustainable credit cost, then is 1.7% more in the lower end of the guidance, sir?

No. So first, I just want to correct one of your observations. I'll go to the disbursement first. And I hope my collection teams are not hearing you on the 2% target for credit cost. So last year actually was 1.3%, not 1.7%. And you're right, last year, the credit cost was lower because of the PCR release, which we got, right? And hence, I said for a business model like ours, 1.7% is better, is a more reasonable number to mimic our business model, considering last year was an aberration with the provision release that we got. Coming to your first question on disbursements. I don't dispute the fact that there will be a deflator because of the price decrease and an overall PV growth in H2 will come with that price deflator. I'm not commenting on whether that same 8% will flow through our disbursement growth. It's very early to give a full H2 guidance. I just wanted to give you a sense of where we think the H2 volume growth could be because of the GST benefit. At least what we have seen playing out, and Sandeep, you can comment, is -- from the festive season, we are seeing both players. We're seeing new people coming in for the entry-level vehicles, and we are seeing a premiumization play also for the passenger vehicle community in the segment. So a little early to comment on the full year but Sandeep, if you want to add, please?

Sir, more on -- if I can -- sorry, just on the price deflator point itself, what has been the average price deflator which you've seen? So if I even look at the 2Q FY '26. So if our disbursement growth is 1% on a Y-o-Y basis, how much would be the negative impact of price deflator. Broadly, if not -- might not be...

I think September is too early, right? Because Q2, we just had 7 days of September. So I don't think you can read anything into Q2 with the festive and the GST impact, very early to even attribute a number.

In fact, we'll have to give it a good 2 quarters' time to really understand the impact coming out of it because 2, 3 playbooks are playing out. One, like Raul said, customers are also upgrading to the higher version of the vehicle depending on their budget. That is also adding -- while it's not adding to overall cost but it does reduce the deflator impact that is there. Second, I think we are yet to see all the fence sitters coming in and starting to buy vehicles, which we will see over a period of the next 2 quarters. Third, depending on the way the business is happening, you may see further reduction or reduction of discounts, et cetera, in the market, which means that the net price to the customer also is retained, and it doesn't go down the way it went down in the last 2 quarters of last year. So I think a bit too early to give a total understanding of where it may go. We should have to watch it. But the bigger and the overall impact, we should not look at this GST benefit as what's happening in quarter 3 or quarter 4, but look at it scattered over the next 1.5 years' time to see, is it overall going to improve the automobile and passenger vehicle market? And my would -- there would go to say, yes, it would, and that's what should help us and help everyone in terms of the lending.

Fair point. Fair point, sir. Sir, one last thing was on the -- so I think if I read it correctly that last 1, 1.5 years, we have put a lot of efforts in building credit score models and basically improving our data analytics pattern. Now if I want to see that it's conversion into either of 2 forms: one, SME growing much faster because of the base and probably last quarter, we did some realignment, which held back the growth. But this quarter, I was expecting the SME to be doing much better. And the second is that I agree that a few years, we have stayed away from unsecured. But do you think that if the credit score models are now defined enough, then is it the right time for us to also explore that as a segment to give us that growth lever beyond just the traditional vehicle business, which we are having? Just trying to understand that for us levers to improve the growth lies either in doing SME LAP or trying to explore the unsecured with our new credit models. Am I thinking on right lines? Or is it the right way to think?

Yes. So I won't get into specific choices of business. All I can say is that for a franchise like ours, we do believe that if we don't find ways to get to a 15% at least minimum CAGR disbursement growth, we won't be doing justice -- I mean, at least to our -- to being in the NBFC leading community, right? So we will find ways to -- right now, the disbursement growth with the choices are slightly lower but there is a stated aspiration to find a way to get to at least on a steady-state CAGR of 15%. We are much lower right now. But with the plans that we have and the segments that we operate, there is an intent to get to that medium-term CAGR number.

[Operator Instructions] We'll take our next question from the line of Prithviraj Patil from Investec.

Yes. So my question is on the 44% floating borrowings that we have. I just wanted to know if we have witnessed all the repo rate cut benefits on this borrowing or like going forward, will be -- like is there any rate cut expected here on the borrowings, which will reduce the cost?

I'll hand it over to my CFO, but I just want to say we don't want to get into anybody's shoes and predict rate cuts, et cetera. But I mean, my CFO is very close to the market, so he'll be able to give you a better reply.

Yes. So if you look at the -- as Raul said that we don't want to speculate about the rate cuts. But as of now, whatever borrowings which we have done in the -- like if you look at the Slide #29, you can see that our largest share of the borrowing has come from the CP, ICD, TREPS as well as securitization pool has gone up. And these 2 modes have given us a lot of competitive edge towards lowering our cost of borrowing. And I think these are the instruments where we have not utilized to the fullest extent. So going forward also, these 2 instruments will be the focus for us to raise funds. And that will give us a continued advantage towards lowering our cost of fund.

Sorry -- so what I wanted to ask is since we have 44% floating rate borrowings, so I just wanted to know whether 100% of the repo benefit is factored into that in our COF right now? Or can we expect the COF to go lower? That's what I'm saying.

So if you look at the 41% of floating rate borrowing consists of MCLR borrowings as well as repo and the T-bills borrowing. So if you look at the MCLR borrowings, that rate might not have been fully transmitted by the banks here. But so far as T-bills and the repo is concerned, those borrowings are completely captured the repo cut benefit as of now.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference back to management for closing comments. Over to you, sir.

Yes. No, thank you, Axis team. Thank you, Praveen, for hosting us. And thank you, everyone, for joining the call. I know it's late. Hopefully, we were able to provide you with the details. And of course, you would have seen the results and details earlier. I think overall, if I were to say in reflection of the quarter gone by and of course, looking at the future with aided and more optimism considering specific benefits that a majority vehicle financer like us stands to benefit. We do look at the first half year gone by reasonably well. And what's encouraging for us is that the investments that we have made, whether it is to make sure that the stability of the asset quality holds and also make sure that we find ways to augment higher margins through both fee-based income as well as continued efficiency in pricing and cost of funds, many of these are playing out. We also look forward to executing well in quarter 3 and quarter 4 with riding the initial momentum that we have gained in the later half of Q2. And yes, we remain focused on the input metrics, which will finally deliver financial metrics. Thank you, everyone, and thank you again and wishing all of you -- we didn't start by wishing you, but yes, the festive season just got over but belated festive wishes to everybody. Thank you.

Thank you. On behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.