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

Ladies and gentlemen, good day, and welcome to the Mahindra & Mahindra Finance Q1 FY '27 Earnings Conference Call hosted by 360 One Capital Markets Private Limited. Also before we begin, we'd like to inform participants that this call is for analysts only. joining from the media may disconnect the call now. I now hand the conference over to Mr. Pradeep Agarwal from 360 One Capital Markets. Thank you, and over to you, sir.

Thank you, Rayo. Good evening, everyone. Welcome to the quarter 1 FY '27 earnings call of Mahindra Finance. To discuss our results, we have with us Mr. Raul Rebello, MD and CEO; and Mr. Pradeep Agarwal, Chief Financial Officer. I would now like to hand over the call to Mr. Rebello for his opening remarks, post which we will open the floor for Q&A. Over to you, sir.

Thank you, Pradeep, and good evening, everyone. Thank you for joining us for our Q1 FY '27 earnings call. As always, I would request you to keep the result updates, which we posted on the exchanges earlier in the afternoon, evening handy. I will be referring to pages in the documents as I walk you through the key updates for the quarter. Let's move to Page #4 first. I have outlined what we think are the key reflections for quarter 1. We've been for a while now talking about what in our definition is pivoting back to growth for the core business as well as the new engines for growth. And in reflection, I would say we are quite pleased to see our core businesses, our wheels business, whether it's the PV business, tractor, parts of the CV segments, 3-wheeler business come back in terms of growth, which has clocked at 20%. Our new engines for growth, which was the SME business, PL and what's not on this page is the housing business has also had a reasonably good quarter, which gives us confidence on the investments that we have made in the past starting to bear fruit. On the asset quality side, I would be a little more generous on our comments here. I think it's -- we've been -- we are reminded that these numbers in Q1, and all of you would be aware that Q1 usually sees some element of seasonality. We have been able to handle that and overcome an extreme divergence from Q4 over Q1. And our GS3 plus GS1 plus GST numbers are at an 8-year low now at GST at 3.47% and GS2 plus GST at 8.3%, which has had a direct impact on my last comment on profitability. If you look at the credit cost at 1.5% for the quarter, has also lent itself to us making sure that the ROA numbers are extremely formidable for the quarter at 2.4%. All in all, the stand-alone numbers on profitability have delivered a 70% Y-o-Y growth. Quickly moving to the continuation on reflections for the quarter, Page #5. Our NIM numbers saw some stress the fiscal end of fiscal '24 and '25, and we have been actively looking at the product composition, actively looking at pricing as well as fee-based income and other initiatives to augment our NIM. I must also mention that we have been benefited by a also leading to last year's rights issue adding to the mix to see that NIM number move up to a zone which we think is the right place it should be, anything above 7%, 7.1% should be the medium-term number that we're chasing. In terms of I won't go back to GS2 plus GS3, but if you look at what the page illustrates versus last year, these numbers are coming at a much lower level. The collection teams have for the quarter been very diligent in making sure that early bucket collections are rendered at a very positive clip. At the same time, we have seen even reversals play out well from a collection standpoint. All in all, the AUM growth was at 13%. Now moving to Page #6. I'd like to spend some time on this page. In our past interactions, many of you have asked us about how do we see a more resilient Mahindra Finance from a long term -- from a participation of various underlying asset categories. And we mentioned the cornerstone for that would be a diversified -- a more diversified asset base. if you go back 3 fiscals, the pie chart that you see, the 83%, 17% was very different. It would be mostly clustered with the wheels AUM. We are seeing a sequential good diversification now kick in from the lending franchise having a non-wheels composition. We see this increase over a period of time, not by reducing the growth in the wheels business, which I wanted to illustrate at a 20% growth. But the real augmenting of growth will happen from the non-wheels business, which is now growing at a reasonable clip. We demonstrated a 79% growth across the non-wheels business, which is largely the SME business, the mortgage business and the PL business that we do on our existing Mahindra franchise. So that's the highlight that the diversification is starting to play out, secular growth across vehicle categories as well as augmented accelerated growth in the new engines of growth. On the right side of the panel, what you would see is what we are very encouraged to see our subsidiaries. We don't actively in the call talk about our subsidiaries, but these are starting to meaningfully now throw up quarterly profit numbers. The housing finance company, very strong PAT growth, INR 30 crores posted for the quarter. Our insurance broking business, which does open architecture, insurance, motor, life, health, extremely formidable growth, 83% Y-o-Y PAT growth and a relatively newer business, 5.5, 6 years into the offering, the AMC business also starting to now show some good signs of growth as well as profitability. I'm picking up a bit of pace right now on Page #8, just deep diving into the underlying asset categories of growth. I've mentioned, we've seen pretty secular growth across asset categories. But what I would call out here is our jaw of market leadership in the tractor business is starting to even widen. We have made very, very significant investments in distribution, in partnerships at various dealer counters, and that's starting to bear fruit in terms of a very high share in tractor growth. You would have seen the FADA numbers that came out earlier in the month. Rural is growing at a faster clip compared to urban in PV business, that's giving us some tailwinds, and we are seeing some of that also add to the commerce of our Y-o-Y growth. SME at 30% is a reasonable growth. We actually have a desire to grow at a higher clip. And the others, which is a combination of PL implements, et cetera, and then again, a decent clip of 7% -- moving quickly to Page #9. Here, you'll be able to appreciate the seasonal volatility that I was talking about earlier. We've been able to contain that. I'm not saying that our business doesn't have seasonality. What I'm basically amplifying here is our ability to manage within seasonal variations is improving. We have a handle on variables that we think we can influence with a larger extent. So this 41 bps, which we saw last fiscal movement between Q4 and Q1 has been reduced in GS2 to only 11. And the GS3 has also come down from 16% to 4%. And on an absolute basis, basically, you'd see June to June, it's 100 bps -- close to 100 bps decrease in GS2 and close to 40 bps decrease in GST numbers, right, with credit cost pretty much falling from last quarter of 1.94% to 1.5%. So overall, seasonal volatility being addressed, Y-o-Y also stock of GST reducing. I know many of you do at the back-end gross slippages. If you look at that number also, we have significantly reversed the trend on our Q1 number. Moving to panel Page 10. I had called out last time with the clouds that were -- which were over us in terms of the West Asia crisis with some of the ambiguity that was already starting to set in at the onset of Q4 with El Nino and the commentary on a possibly compromised monsoon, we decided to be prudent and increase our traditional liquidity buffers to an extent that you see close to INR 5,500 crores. That does have a drag. It has the existing -- I mean, a departure from the normal quantum of liquidity buffer does have a drag, but we thought that's the most prudent thing to do. The second prudent activity was in terms of the coverage. We took 2 overlays, 1 in Q3 and 1 in Q4, and that's why you see the PCR number at the levels they are 58.1% for the quarter ending for Q1 of this fiscal. Moving to Page 11. This is a page which gives you a good appreciation of the DuPont of how independently things are moving. The big call-outs are here. If you see the ROA expansion, there is a cost of -- I mean, there are many things moving. the significant ones are cost of funds and credit costs. Those are the 2 big ones over there, which have rendered a stronger ROA of 2.4% -- moving to consolidated financials on Page #12. While core PAT moved at 70% Y-o-Y, I did, in my passing commentary, talk about our subsidiaries meaningfully adding to the mix now. So on a consol basis, also, we have grown very well, 75% Y-o-Y at INR 927 crores. There are pages which we basically talk about the franchise, but I will skip most of them and come to one of the capabilities that like most formidable franchises are building in the AI muscle. I'm moving to Page #17. For us, Mahindra Finance took a little time to even climb the maturity curve on digital. That was our first agenda to -- the first bridge to cross. We were speaking to most of you, and I'm happy that some of you joined us in our field trips to dealership locations to our CPCs. I know many of you asked us and happy to give you any -- some of the analysts have written to me and team to facilitate more such field visits to appreciate what we have done over the last 2 years on climbing the graph on our digital maturity, which we call it Udaan stack. I'm happy to tell -- to share with you that it's now 100%. Our entire wheels business is done on the digital -- digital stack, which means that productivity, you'll see we're not adding too many manpower with the last 2, 3 years, our manpower count has remained about flattish, but we are able to squeeze in much higher clips in terms of productivity, which is largely augmented from the Udaan, which is the physical digital stack. 100% of our disbursements close to INR 15,000 crores done in Q1 was on the new stack, which is the LOS of Salesforce, the LMS of FinOne and the APIs we have with various other kind of toolkits, whether it is the ULI base, whether it is account aggregate, et cetera, all that coming to bear. Now the next frontier for us was AI, but AI, we didn't want to get lost in the woods. We have a very strong definition of what AI will lift for the franchise, defined on 3 pillars of customer acquisition, operations, resilient operations and efficient collections. On acquisition, we have a dollar value, rule value target that we are chasing through digital and AI-led acquisition. We are already seeing in Q1, and we talked about it in Q4, a 25% lower cost of acquisition from these channels, which are starting to bear. On operations, we are seeing file costs come down because we have increased our in-house AI agent, which we have coined as samor.ai, now covering from 20% where we gave the last update of our CPC operations, which are agentic in nature, that's climbed very quickly to 45%, and we will see much higher coverage in the foreseeable future. On collections, which is again, AI augmented collections from workflow standpoint, whether it is 12 AI vernacular bots that call our customers to remind, whether it is STP, we have panel charges being collected through AI bots, which once the call is done, tuck in a WhatsApp payment link. We're seeing very, very strong rupee value benefits from the collection standpoint. More importantly, this is rendering into some of the forward flow numbers, which are coming in much lower. So our AI vernacular bots coverage has gone up to 20%, and you'll see a much higher clip going forward. My last slide is on Page 19. This is not a new slide. Guys, we've been, I think, for the last 4 quarters. This is what keeps us honest on a daily basis, very key priorities that is cascaded to the length and breadth of the organization. We have 4 big themes. -- defend and grow leadership, which is starting to play out, as you saw in the numbers. We have mortgages, SME leasing and fee income is a big theme. That's also starting to show in the NIM profile. We have margin focus, which is also seeing across various asset categories. As I said, most of my business heads now speak only ROA language rather than just business growth. Risk has been swapped into by the CRO's office, by the collection head. So we're seeing all the investments that we have done in the control function play out. Overall, the North Star for us is to have a very resilient franchise, ticking all boxes in terms of very efficient toolkits swapped in from the traditional -- moving from only the traditional underwriting to smart underwriting and sales, using the best-in-class digital data levers for overall business and controls to finally see an ROE, ROE outcome, which is in line with what we think are the best in category with the ROA now improving to a 2.4% and ROE touching close to a 15% ROE, we do think the investments that we've been focused on are starting to bear. With that, I'll end my commentary and hand it back to the moderator for Q&A.

First question is from the line of Nischint from Kotak.

Congrats for a great set of numbers. I have a few timing questions. One is on the operating leverage side, we have seen a fair amount of improvement -- and going by the digital commentary, I would believe that we will continue to reap some fruits. But just some color or some picture in terms of how much juice would be left and probably if there is any next leg of CapEx, which could be required? I mean just to get a little bit of a handle of how the operating leverage or operating expense ratios play out...

Yes. Thanks, Nischint. See, for our traditional businesses, right, I mean, the wheels businesses, you would already -- we look at 2 metrics. One is OpEx to average assets and cost to income. Both these numbers for the wheel business, there is a delta to squeeze out there. But as a growing franchise, we are investing in the new categories, new engines of growth for which we are not shying away from making incremental investments. So there, the OpEx to average assets for, let's say, a mortgage business or for the new SME business or for some of the new categories of PL, et cetera, which we're doing, those will naturally see a higher clip. But for the traditional businesses, I'm encouraged to see the number from 2.8% sequentially slip to 2.65 or come down to 2.65% from a Y-o-Y, it's almost dropped 10 bps, right? This is largely the main businesses can see. I want to attribute some of the investments that we made over the last 2 years in terms of the Udaan stack, the productivity gains that our frontline offices are seeing have played out. Whether this will -- this is very -- is there scope for it to dramatically change. We are in a distributed business. We still do a lot of digital activity. Our customer base is rural, semi-urban, self-employed. So we will need to keep that OpEx number at a level which doesn't -- the way we look at it, we don't want to reduce OpEx that creates a credit cost number for us.

Got it. But at the planning stage, can you say that your OpEx growth would be whatever, in line or x percent lower than loan growth or something like that?

Yes, definitely. I mean we look at the jaw between revenue growth and OpEx growth, which will -- again, revenue happens with AUM. So that jaw has to widen...

Got it. Just looking at Slide #24, and I'm looking at the line for end losses. We've seen good improvement in gross Stage 2, 3 loans, but end loss ratio remains sort of range bound in the between 1.2% to 1.3%. So how should one think about it? Does this number come down? Does this come down with a lag? Or this is a very comfortable number for us?

See, Nitin, I would stand by my earlier guidance of 1.3% to 1.7% overall credit cost. Sometimes some quarter, you'll see provisions going up. But since our business needs to factor both this provision as well as end losses, I don't have any new metric to offer than saying that the business model to hit our ROE expectations will operate within the band of 1.3% to...

Sure. And just one last one on the CV business side. When do you see the disbursements picking up? Or is this by design that you want to license right now?

We've got this question in the past, and I've made this distinction on our participation framework shift for the CV business. We were earlier playing in all facets of HCV, construction equipment, LCV, SCV, M&HCV. We have consciously looked at from an NBFC as well as someone from, let's say, with the cost profile that we have, we are actively reducing some of the earlier HCV CE business of fleet operators, considering the overall ROA attractiveness of that business. I don't need to labor the point that's post-COVID, that fleet operator segment has migrated more to the bank supplier base because of the cost of fund attractiveness. So while we have recalibrated growth now in the SCV, LCV, but it will take time to play out on our on numbers because we were, let's say, shaving off growth on one segment while increasing net-net, you're not seeing that number go up. I do think in the next few quarters, you will see how our investments in the FCV LCV business will add to some of the growth going forward. Inherently, versus the other categories, CV does have its cyclicality, et cetera. So we do taper our growth aspirations, keeping in mind medium cross-cycle ROE objectives.

We take the next question from Kunal Shah from Citigroup.

Congratulations for a good set of numbers. So firstly, on the growth side, so given this entire diversification strategy, the entire tech stack, improving the productivity levels plus maybe getting equal comfort on the asset quality side. When do we see growth going up? It's reflected in terms of the disbursements, but that's again on a lower base of 1Q. So would there be acceleration in the disbursements and the growth? And how long would it take for us to get towards maybe the mid-teens to high teens kind of a level at the -- on the AUM side?

Kunal, thanks. So I do take your point that last year was a tale of 2 halves where H1 was pretty much flat growth and H2 was thanks to GST and a lot of other benefits. So naturally, we are benefiting from -- everyone is benefiting from a lower base of last year. I can only go back to in our Investor Day, we basically talked about how do you think about CAGR growth for the franchise between 26% and 26% to 31%, where I did mention that we are looking at the franchise compound at a 16% to 18% growth, right? Now for the 16% to 18% growth, the core business, which is the mobility business will have to -- at a lower end, compound at a 12%. And the new businesses will have to compound at a 30% plus. If you look at what's happening for the last 2 quarters, we are seeing that play out. For example, even the AUM growth for this quarter, the mobility -- the wheels franchise has compounded at 11% to 12% and the non-wheels franchise has started compounding at a 28% to 30% -- and that's the clip we would like to maintain going forward to get an overall growth in the corridor of 16% to 18%, right, with the current mix that we have. That's exactly what we had communicated at the Group Investor Day, and we stand by that objective. We know from a categories of growth, we will have to really kind of accelerate on the new engines of growth. And we have made investments and we are confident with the investments that we have made that we'll be able to hit those -- the accelerated CAGR growth of the non-wear. For the wheels, we have done this for 3 decades. We have made investments also, and thank you for joining us for our feed trip. You would have seen some of the core businesses that we invested in through the Udaan stack, et cetera. So structurally, the mobility business will definitely see industry, and we are aiming for industry plus growth across the 3-wheeler, 4-wheeler, tractor, CV business.

Yes, sir, that's what maybe on the mobility business, why we are still stuck at the 12% growth after taking so many initiatives wouldn't we see a better growth profile out there, maybe 10%, 12% on the low double-digit kind of a number still appears to be maybe, I think, slightly modest given the initiatives and the productivity, which we are improving. We saw the entire tech stack, maybe it's improving the productivity quite a lot all across. Then why not scale up the core mobility business growth as well?

So Kunal, the core mobility business, which I track from a FARA lens from incremental business, in all asset categories, we have gained market share, whether it is the PV business, whether it is the 3-wheeler business, whether it's the tractor business. CV, we have not gained market share. But for my appreciation on month-on-month diligence on growth, we look at lender market share. And it's easy for me to get that with the bureau data and the FAA data triangulating that. So I can give everyone confidence that if you look at Q1, we have gained incremental market share in all categories, except CV categories.

The next question is from Shreya Shivani from Nomura.

Congratulations on a good quarter. My first question is actually going to be on the ROA target. I mean we've had a very good start to the year. And I understand there are -- I mean, there is seasonality through the quarters, but 2.1% or 2.15% seems like -- I mean, you're way past that. So where do we see closing our year, maybe 4Q '27 levels? Second is on the monsoon trends. And this one sort of is a follow-up question to the earlier one that, I mean, we all know the risk to the deficit of monsoon, et cetera. But any color on what are you seeing on ground? Any kind of changes that you have made to deal with it better other than the overlay that you made?

Shreya, am I audible because you had a line. Can you hear us now?

Should I repeat my question?

No, I heard the question. I just want to know whether we are audible.

Yes, yes, you're audible.

I just refrain from giving -- we don't give yearly guidance. in terms of ROA. What we had clearly mentioned in FY '24 is we don't think the franchise is doing merit itself by operating at a 2% ROA. So we talked about hitting 2 climbing to 2.2 and then getting eventually to 2.5, we gave a frame for that. We're happy that we are moving in that direction, right? We are progressing in that direction, but I'm referring from giving my fiscal year-end ROA numbers. Now moving to your second question on how sustainable are these? What are the kind of proactive measures we are taking in an environment, which clearly has cloud in terms of, let's say, the old disruptions as well as the El Nino and rainfall. I might be repeating this, but what we have done proactively is 2 things. for the book that we already have in the bag, what we think is essentially is an extreme level of monitoring and actioning we have created an extremely high sensitive monitoring mechanism where we look at each geography, what are the thresholds of stress points that if they are starting to get its we activate Brand B, plan C, et cetera. So the monitoring of stress as well as actions in terms of collections, et cetera, is something that we started very early in this quarter, actually the exit of Q4 itself. And some of that is bearing fruit. We are on an agile basis, creating collections ports, et cetera, which are required in locations where we see any stress points starting to bear. And this is a year which is going to be a very early part of the year. This could keep manifesting in different form factors. We have created the capabilities to overmanage the situation for the existing book. the playbook for the incremental business is creating high entry barriers for businesses, which we think are more vulnerable in this environment. And that's where -- whether it is in the SME business, whether it's in the mobility business, which is let's say operators, logistic operators, et cetera, which have a higher level of vulnerabilities, we have kept higher entry bars, we have asked more skin in the game for these kind of customers which are coming through the door. So that's the playbook we are following. I completely agree with you. This is a where we have to not take for granted what Q1 has rendered itself. We have been extremely watchful and there is no complacency in our franchise, at least. In a decent Q1, we think it's extremely pertinent to be 100% on the ball in monitoring portfolios as well as acquiring a business.

Right. And also the elevated liquidity levels that you pulled it up to in 1Q, that should play through the year? And should we expect the cost of fund, which is a 9 bps or so sequential increase to play out for the rest of the quarter as well?

I'll hand it over to Pradeep sir but let me tell you that we are looking at the liquidity buffer on a dynamic basis. we have a very active treasury team as aggregate the cost of funds and the liquidity position we take all. So if we see that we are entering a new domain of stability, we won't shy away from letting go of some of the additional offers that we pay. But I'll just hand it over to Pradeep to unpack it in detail.

Yes, sure. So I think we have seen the geo particle event play out in quarter 1. And I think it again picked up in the recent past in July as well. So on the cautious side, we, as of now, continue to carry an original equity buffer of close to INR 5,000 crores of rupees. As in the situation improves and we feel that we will not cure this buffer Accordingly, we'll unwind that buffer. So far as cost of borrowing is concerned, again, we have seen a fluctuation depending on the expected inflation level basis on the crude prices and our geopolitical crisis. A lot. You have seen our third 1 cost of funds going up by equity adjusted cost of funds going up by 10 basis points compared to Q4. We don't see a steep hike in this kind of cost of funds because these are impacted by the incremental cost of funds and not-entire stock cost of fund. So I think overall, we are -- should be in the ballpark in this kind of range, 10 basis points plus minus here and there that will market will return as and when we go forward. Thank you.

The next question is from Avinash Singh from Emkay Global Financial Services.

Great set of numbers. The first question is around your strategy around, I would say, the non-wheel as well as the fee income. So regarding mortgage or housing, what's the game plan now? Are you looking to continue doing this business under that your subsidiary but kind of a changing the mandate of subsidiary to go more for universal housing than the kind of a or low ticket housing they are doing or you plan to do that the prime or tie housing or lap within the parent organization. So that is the one. And secondly, regarding the fee income side, on that, okay, what's your take on the kind of at least feel risk or to risk around IRDA's upcoming reliant limiting commission income. And related to fee income also, you had some time back, I mean, maybe a couple of years ago to kind of capture the RN vehicle borrower market by going into CSM kind of arrangement with a large public sector bank, including I guess, SBI. What sort of status of that. If there's something progressing all completely around. So that's kind of the entire question around your non-real as well as the fee income -- and the second question, we rolled around asset quality very, very impressive that, okay, now you have kind of minimize the volatility and kind of a seasonal volatility. In terms of the disclosures, I mean, would you kind of try to give something more of a bit of a need indicator kind of the 12, 13-plus or 90-plus that get an idea that how particularly in the business and you have originated how they are improving, particularly from the early but non-state bucket delinquency perspective. So can you just add this kind of a disclosure probably to provide more of a bit of a lead indicator or some bit of an improvement there? Thanks.

Four questions in that. I'll take them sequentially. On the housing front, we had specifically mentioned that both the boards will sit on judgment on this by Q2 of this fiscal. Our priority from an operating team standpoint was to accept the mortgage housing orders, which we have done. If you just look at the franchise, I think it's firing on all cylinders in terms of growth, they have pretty much bare the fast asset quality concerns. And at an employee base, which has shaved off and now operating at a very formidable level. The operating metrics of the housing business, I would say we have crossed that big. Key highlights, as I mentioned earlier, they hit a INR 30 crore PAT mostly by a good set of growth numbers, good set of GSI slippages, et cetera, all contained well. So that's on the mortgage side. We do 2 facets of business there. We do affordable, which is self-construction and some kind of in our non-metro locations because we are a deep geography player. So we get that forms -- and we have started in a calibrated manner, the prime business, which on a consol basis, we think on the medium to long term, will be not ROA drag on the future. That's on the housing. On your comments on insurance, I think there's a dynamic evolution of -- we don't see the guidelines yet. We know that something is coming regarding a very prescriptive manner in terms of what commissions are going to be, et cetera, et cetera. I would just say that our insurance income today for both our credit line as well as we have activated in noncredit life, 1,300 branches now are selling retail products. And what we take most comfort is all the products that we do are extremely good for the customer. There is complete consent. There is products which are for a customer segment, which is fraught with volatility and ambiguity all the products that we do are anchored with what is absolutely good for the customer throughout all our audits, et cetera. We have come -- we have been, I would say, bracketed as a very responsible a provider of all the credit and protection products. So we are very confident whatever regulation comes because our products are very clean no hybrid or no lips or no very complicated products. We do very basic products. We don't see a very big departure from the fee-based income, which we have swapped into the organization over the last 2 years. Your third question on coal lending, the guidelines change, which meant from January 1, there is only 1 playbook for coal lending, which is a system per system integration. So we were doing some business with some banks -- we had to unlock that because of the system readiness. I'm happy to share that we have gone live in the TV business with 1 bank in this quarter, very -- numbers are not material, but we have managed to go live. We do see merit and we will continue to do EBIT testing, et cetera, et cetera, considering them an access to commerce, but that commerce may not do benefit to our balance sheet. We are looking at the best way to partner with like-minded folks who can win-win for the customers' overall pricing expectation. On your last comment on credit cost disclosures, I think we have a fairly decent level of disclosures right now on GS2SP within credit cost, how much is and losses, how much is provisions. But I will reflect on what you suggested and see whether we need to further amplify some of the disclosure elements over there. And if we think there's merit in doing that, we'll kind of edit the pages accordingly.

The next question is from Piran Engineer from CLSA.

Just if I could delve a bit more into what sort of underwriting tightening we are doing in the tractor portfolio, specifically with respect to El Nino risk, that would be helpful.

Hi Piran thanks for that question. See, there are certain -- so let me just contact the tractor customer segment, right? There is a customer segment which is totally dependent on rural cash flows and agri cash flows. Typically, what we do there is we do a half yearly or quarterly installment because it reflects into their cash flows. And then there is a large set of customers which are using the tractor for holler income as well as partly agriculture or rural catchings. So our underwriting reflects that. So our underwriting would largely be relevant to what you talked about El Nino, etcetera, would be those households or those customer segments whose fortunes are very, very tightly coupled with agri cash flows. And there, our underwriting scorecards as usual, assess what the agri output should be to repay the kind of the levels that they are borrowing whether it's a combination of cash crops, MSP costs. So a very detailed tool and maybe we can spend more time off-line giving you more color on that. But for this group, let me just say that -- what we see as an El Nino is not just rainfall, but it gets amplified overall by rural and agri cash flows. And rural and agri cash flow is not very simplistically, just what is agri output. It's a combination of Mandi arrival, the MSPs, the whole lot of things that underpegs that rural cash flow. It is too early in the day to call, but we have enough experience over the large few decades doing tractor underwriting to know and of course, augment the underwriting scorecards to keep the right level of approval rates to also we play on LTVs also, right? Piran in our customer segment, the most skin in the game, the better buffer we are in terms of this -- in the credit cost ultimately.

Got it. But -- and for the back book, there's nothing more we can do apart from the say, augmenting, monitoring more collections, et cetera, right? I am referring to tractors.

Yes, bang on. We don't want to pay the last creditor in the list. We'll show up first. We'll kind of -- we always say we have made we are fair but firm in our collection. .

Next question is from Viral Shah from IIFL Capital.

Congrats on good set of numbers. Just while most of my questions have been answered and help us deeper into what is structurally now driving the market share gains for us in some of the subsegments or other most of the subsegments of vehicles that we mentioned, right? Like what is the strategy that we have over the last probably couple of years fixed? And how should we think about this going ahead, and of course, there are some, I would say, potential risk in this year with regards to growth. But structurally, how would you put it?

Yes, thanks from the ability to gain incremental market share the biggest vectors over there are improving channel relevance and being hygiene in terms of customer elements in terms of TAD product features, et cetera. I think what we have concentrated on for the last few years is we were seeing minor finance slip on the channel relevance. -- specifically because some of the, let's say, the customer that the ability to respond fast with the time to yes, time to money, all of that stuff was. The industry had moved or the finance industry had moved ahead of -- thanks to the investments done to the rate, et cetera, and I'll invite you, I don't know whether you were part of the field trip, which said in action at the dealership our ability to scale the time to year end time to money has gone up which is rubbing off well on the channels. That's what I would place as 1 of the abilities structurally to be the financer of choice to the channel and the customer. I must also mention that versus other financers who Basically, our very -- they come in at festive season, they go out. We are a mobility financer who have very well immersed as set in the micro market and that dealer ecosystem. And that's now starting to play out. We have created in the last couple of years, we created a program called key account manager for our dealers, where we have -- looking at dealer relevance holistically from trade advance to inventory funding to retail market share to other abilities to deepen relationships. Because in this business, while some of the lenders have tried to be extremely cute in the channel relevance and higher index from customer elements. We look at it in a combined manner of channel and customer revenue; and all of the investments that we have made in the couple of years have, I would say, giving us -- I don't think they arrived in life. We've been able to climb our graph on both these relevance point and that in some giving us what we see incremental market share benefit. And with these investments, it's not all done. We continue to invest. Hopefully, we'll keep our incremental market shares also at a formidable instance.

Thanks for the detailed explanation, Raul. Of course, I'll connect with you separately. Just as a follow-up. The second question on the insurance fees that you mentioned, how should we think about it with regards to the MIBL subsidiary that we have?

You're talking about the MIBL?

Yes, MIBL. You explained the stand-alone piece.

So see, you have a corporate agency rigs and a broking. -- both have, I would say, playbooks are quite differentiated Earlier, I would say, because we didn't have a corporate agency, we couldn't exploit revenue pools that existed, right? So we had to have the broking company in a very inefficient manner set in our branches, et cetera, and do captive business. So we have created a very significantly clean playbook, what the corporate agency will do, and the corporate agency largely does Mahindra Finance ecosystem business and MIBL does open market business as well as an ecosystem business, which is the first year vehicle motor insurance -- and what we have seen, the operating team at MIP delivered very well is the penetration in the first, second, third year of the motor insurance business in M&A ecosystem as well as they are going to 2, 3 other OEMs now created relevance over there. And I think the headroom for in the motor insurance business, there is still significant those for us to exploit. We are already seeing that in the numbers Q-on-Q, they have grown from 21 to 28. There's a lot of operating focus in motor and commercial lines. I would like to point out in the MIBL business, it was a 1-trick pony, just motor insurance. Now they're starting to see reinsurance, commercial line business all come in. We've got a very good leadership team there, a very good second line of leaders, all staying extremely honest to market share increase 3, 4 facets of the broking business that we are set their eyes on.

Thank you. The next question is from Abhishek Murarka from HSBC.

Congratulation for a very great quarter. So Don, I wanted to check this credit cost guidance of 1.3 to 1.7 that you've given, implementation of tech, AI, cetera, how much of this you expect to get shaved off to this range of 1.3 to 1.7, net over 3 to 5 years, does it come down by 20 bps, 30 bps. How do you see the efficacy of the AI work that you're doing? The similar kind of question on the cost side, right? So there too, you are doing a lot of tech upgrade and higher growth in new businesses. So when do you see that operating leverage playing out? And related to that is the employee base, especially in your stand-alone, that's been around 22,000 people. But at the same time, you're seeing higher disbursements and higher growth. So at what point do you need to start adding to that? Or do you think you'll have enough efficiencies that employee growth lags AUM growth by a significant -- I mean, significantly. Just trying to get a handle on these three.

Yes. Thanks, Abhishek. See, I just want to add the upfront mentioned that there is sometimes a perception that AI is this magic 1 that can save off at no cost, but for everyone who's starting to soak in the token cost numbers, we need to look at the trade-offs between open cost and human capital costs, right? So I just want to make that point. Maybe many of us got delivered into looking at in the animal period of AI, not being a big token cost Goslar, -- we have a very conscious view on what's that trade-off on the OpEx front at least. And by virtue our business, most of our business is not just pushing money into someone's through an app to somebody's bank account, right? We are not a very prolific PL open market player. So our businesses have a leg of assisted journeys. Our businesses do have customer segments who are not all 100% digitally savvy. So I don't see -- I mean, we have come down on our own graph of OpEx to assets, cost to income. We have come down reasonably. I think this 2-point I've always said, been in the 2.5 to 2.7 clip is a business model requirement for us. Anything below that significantly might start showing sales of compromise on the credit cost side. So -- that's my take on the OpEx side. We will use as many tools. Please visit our CPC to see how -- where the AI tool is not consuming too much. We look at AI almost an ML and our own open stack model so that we're not guzzling on token costs. To augment the efficacy of reducing cost per file, reducing some of the traditional cost of acquisition, et cetera. Now to your question on the 1.3 to 1.7 if -- again, I will drastically shave that number up. I would still stay with that 1.3 to 1.7 for the business model from a medium. And this is, by the way, -- we all know that our businesses have cyclicality, right? I got this range across cycles because I do believe at the lower end, we'll be able to augment a lot of the tools to come close to the 1.3 number. We're already at 1.5, but there could be times when things go south, and that's the 1.7 for those kind of time.

And employees?

Employee side, I did mention that we have come down. We think that we don't see system at this point. How do we see ROA expansion. As I mentioned, our growth in revenue has to outpace growth in OpEx growth in OpEx is companies like us have largely 2 costs, right? We have people cost and we have branch costs. So we will optimize between this to make sure that the job of revenue growth versus our mix growth is optimized.

Next question is from Anand Dama from Nuvama.

My question was about the gross spreads, which have actually come down quarter-on-quarter. -- what kind of cost of fund that we should expect going forward? This is again a cost of fund that we are senor the average for the quarter. What was that for the month of June -- and it is basically -- I think you took another participant side that you want to keep the liquidity on a higher side, given the concrete and so on. And so basically, in that case, that should have a bearing on the overall margin for us for the full year.

So I'll give some opening commentary and hand over to Pradeep. You're right, sequential -- and it's a single-digit number. So possibly, you're not able to appreciate it in total. But if you just look at the big number that has moved between the quarters, it is the loan income, which has fallen by about 25 bps, right? Now there's a big attribution of that 25 bps completely to the liquidity buffer, enhanced equity buffer of INR 5,500 crores that we are carrying, right? I don't have a crystal ball to gas to say that this number will completely get shaved off in next quarter because it's a dynamic we are watching overall liquidity that relate, as I mentioned, does what's the liquidity position to take calls whether we need to slamdown on that buffer or keep it. So far, we believe as a prudent lender, it's always good to hear on the side of caution. So we are keeping a buffer right now. the minute we see things getting better. That number will get shaved off and you will see that on income, the 25 bps, which is largely attributed to that also go down and give us a gross rate, which is coming back to move from the numbers. Maybe Pradeep can add more color to that.

Yes. I think, again, just Raul has already covered this topic. But this fall in the loan income is not attributable completely towards the negative carry. It's more of a denominator impact. that point just want to clarify over year. Negative car is there for the extra liquidity, but it's not very tangible enough to run this kind of large businesses. to absorb any sort of unforeseen market dynamics. From that perspective, I think equity is not that much. it's more of a denominator impact, which is kind of dragging us loan income in terms of percentage terms. In terms of cog, if you ask me, I think in the earlier question, I've replied like quarter-on-quarter when the borrowing rates were elevated throughout the quarter. We have seen a 10 basis point of increase in the cost compared to last quarter. whether the borrowing rates further goes from here or was the situation normalize, we can see a certain amount of softening in the borrowing rates. I think these are all market dynamics, which play out. over I said that it doesn't impact us largely because we are carrying a stock-up borrowings and incremental borrowings only get impacted because of the rate fluctuation. So all we are quite comfortable with the current range which we already guided for the year last quarter also. So that's the way I can put it to cost of funding.

That's helpful. My second question is on the collection efficiency. That's trending well in the first quarter. Do you expect that to continue or basically it should improve further in the second quarter? And if yes, whether you would want to unlock the management overlay that you have built in the second quarter or maybe after that once you have a better handle on the overall situation?

I think it's too early to call the second quarter. We are, as I said, we have an enhanced monitoring or making sure that the vulnerability sectors are over prioritized. Q1 has been has played out well. Q2 typically has some kind of disruption in certain categories like tractor, et cetera. which will be more watched this quarter considering the new go ball that is there. But I don't want to kind of call the Q2 number right now. I can just say that we are making sure that we are equipping the teams to overmanage any disruptions.

The next question is from Abhijit Tibrewal from Motilal .

Also just 2 questions and basically clarifications on what you've already shared with us earlier. First on growth, I think I remember you shared that the wheels business should grow at 11% to 12% and the newer businesses should grow at 30%, which would allow us to deliver a loan CAGR of 16% to 18% over the next 5 years. So given where growth is today and expected to pick up gradually is the understanding right that maybe at the back end of this 5-year range that we are talking about, maybe FY FY '30, FY '31, we're looking at a growth which would be in excess of 18% to 20% to get to that 16% to 18% loan tariff?