Weak earnings in the June quarter dragged shares of Mahindra & Mahindra Financial Services down by 10.5 per cent to Rs 304.35 on Wednesday. The fall was said to be their worst one-day fall since January 2008.
Since May 2017, the stock ended at its lowest level. In June quarter, the rural and semi-urban financer M&M Financial saw its profits decline by 75 per cent to Rs 68 crore, compared to profit of Rs 269 crore in the corresponding quarter last year, due to an increase in provisions for stressed loans and elevated cost of financing, owing to tight liquidity conditions for non-banks.
Compared to 4.8 per cent in the March quarter, the gross NPA ratio came in at 5.7 per cent. Provisions worth Rs 6,196 were made in the quarter to stressed loan pools, a 110 per cent rise from Rs 2,938 crore provisions taken by the NBFC in the corresponding quarter last year.
American multinational investment bank and financial services company Morhan Stanley said, “Bad loans rose sharply as expected given seasonality and a strong F4Q19 (March quarter FY19) recovery. But provisions were higher, causing a big PAT miss. PPOP (pre-provision operating profit) missed owing to higher costs”. The brokerage sees meaningful downside risks to earnings forecasts.