Good evening, ladies and gentlemen. Please note, this call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. Good day, and welcome to the Mahindra & Mahindra Financial Services Limited Q2 FY 2024 earnings conference call. This call will be recorded, and the recording will be made public by the company pursuant to its regulatory obligations. Certain personal information, such as your name and organization, may be asked during the call. If you do not wish to be disclosed, please immediately discontinue this call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. I now hand the call over to Mr. Anuj Singla. Please go ahead. Thank you, Darwin. Good evening, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Mahindra Finance call to discuss Q2 FY 2024 earnings. To discuss the earnings, I'm pleased to welcome Mr. Ramesh Iyer, Vice Chairman and Managing Director, Mr. Raul Rebello, Executive Director, and MD and CEO Designate, Mr. Vivek Karve, CFO, and Mr. Dinesh Prajapati, Head Accounts, Treasury, and Corporate Affairs. Thank you very much for the opportunity to host you, sir. I now invite Mr. Iyer for his opening remarks. With that, over to you, Mr. Iyer. Thank you, and welcome to the call. Good evening, everyone. The way I would like to kind of begin with is to start from what we see on the ground as a reality, and then how do we see our own numbers for this quarter, and how do we see it going forward? So I think, and I would, when I'm speaking of on ground, I will also try and bring in the color of the festivity that we have already seen, that has gone by. I think overall, I think the sentiments remain positive. When we talk to dealers across the country, they seem to be happy with what's happening out there, while the inventory levels were starting to build. But I think the footfall at the dealerships continue to remain robust, and therefore, the retail volumes are doing well. In light of the festival season, which just went by, and when we talk to the OEMs, they are very excited with what they have been able to accomplish during this festival season, and they are preparing themselves for the next big festival, Diwali, and they are very confident and hopeful that the inventory levels definitely would get corrected, as well as the retails would be substantially good and better. I think on the overall front, I think monsoon finally ended positive, though with some hiccups in August and some kind of a delay happening in September. But on an overall basis, ending up at 94% average is a good number to look at, and the sentiment seems to be driving positive there. The infra front, again, is seeing good traction. We are seeing deployment of assets doing well. Labor absorption is pretty good, and most of the states are on overdrive when it comes to infrastructure, when it comes to mining. So therefore, even on the infra front, things seems to be doing pretty well. From our perspective, these are excellent trends to look at. These are the cash flows which really drive this business, both when it comes to disbursement as well as when it comes to the overall collection and collection efficiency leading to asset quality. In spite of the fact that the monsoons vertically were extreme, sometime in July, went dry in August, went again, picked up in September, it's important to note that the number of days available to operate during this period normally goes low and slow on because of the climatic conditions. Which is why, historically, the rural market has always reflected lower disbursements, lower collections, asset quality deterioration in the first two quarters of the year, and that's been our trend in the past. I think what has happened during these two quarters, and the quarter gone by the first one and now the second quarter of this year, is we have really changed the trend for ourselves, and we have seen overall improvement in all front. We are very happy to report that we had a good disbursement growth, and the numbers are already with you. We have had a good asset growth happening. And also very importantly, our stage 3 was curtailed at the quarter one level and which is lower than the March closing level. And the stage 2 continues to show a declining trend, which again, is an excellent trend, leading to believe that the forward flow is getting arrested and asset quality overall is improving. I think what you would see, in spite of the stabilizing, stage 3, there has been a higher charge which has come into the P&L, which has kind of temporarily, pressurized the profits for the quarter. And that comes from the fact that in few markets, because of the delayed monsoon situation, there were the postponement of cash flows that were happening, and they are relevant markets for us. And until fifteenth September, we did see things going well, and then were waiting for what is the next from a monsoon news, got a little delay, but we would think that they are absolutely temporary in nature, and that's why you will see collection efficiency still ended up at 96%+. The GS3 ended up at 4.3 type level, and this temporary increase in the tractor portfolio, which went up by about INR 300 crore for us, is cost a little additional provision that we had to make. But that's not bothering us at all, and therefore, you will also see a statement from us, which is we expect our credit loss as we close the year, is expected to come down to 1.5-1.7 type numbers from where we are today at about 2.3 or so. Therefore, we don't have an hesitation to make that commitment of where we think we will end up the credit cost to be. Because for a very simple reason, that if the GS3 numbers are at 4.3 and the stage two numbers are at sub-six level, we don't expect this going down through repossession, settlements, terminations and bad debts. This will go down further from here by pure collection, and therefore, our expectation that the credit cost would end up at 1.5-1.7, going forward. So for us, the growth is concerned, I think we continue to remain robust, to believe that the asset growth will continue to remain upward of 20% as we close the year, and the disbursements will keep in pace with, for us to achieve that kind of asset growth. Again, where are we coming from? I think the inventory levels that have been pulled up during this period for festivity, has seen Dussehra to be one of the good retail numbers, and Diwali is expected to be equally good. Supported with that kind of a festival output, the last quarter would pick it up for further retails to happen. We are confident that as we close the year, the asset growth of 20%+ will also be maintained. All of this leads to the commitment that we made for the March 2025, where we would end up. We are not relooking at those numbers at all, and we are confident that we will hit those numbers. As far as the OpEx is concerned, it does remain at the levels that we were, and as we have been explaining also in the past, they are more caused by certain transformation agenda that we are driving, and they will be very natural to incur those costs to get benefits of this cost coming through, in the future with various actions that we are putting to place. You would have seen certain pressure on the NIMs level that we have seen. I think two or three things I would like to call out very clearly. One, I think we expected that the borrowing cost would come down, and we have made that statement that our expectation was around the festival and post-festival, the borrowing cost would come down, but I think that's getting challenged, and we don't now believe that the cost is going to come down. While believing it will come down, we had not pushed up our rates, but now that we are more clearer about hearing out statements from RBI, et cetera, that the rates are not likely to come down, we have already planned to increase our lending rates selectively on some models, some geographies, some products, et cetera, and that would help relook at our NIMs by March. I think the other things, we have consciously got into certain high quality customer segments, and while they may depress the NIMs to an extent, I think they clearly contribute to a lower OpEx and definitely a lower credit cost, and you will see the benefit of it as this portfolio builds further. But even in the current scenario, we clearly see the benefit of this portfolio come through. I think the third is also an element of mix. I think the growth that would have come through in this couple of quarters is largely coming from car, that is, cars, personal segment of M&M, as well as some commercial vehicles, which are by nature expected to be a low-yield product. But as we see the tractor pick up over the next six months to an extent that it could, and the pre-owned vehicle, that is refinance business pick up, you will also see some correction to the yield that will happen. Putting all these three together, that is our rate correction that we have talked of, as well as the product mix change that we are talking of, and the increased rates that we are talking of. If we were to take all these three things together, we believe that the current 6.6 NIMs could inch up to a 6.8 kind of a number going by March, and then our aim to take it to seven in the following year continues to remain. So I think two or three things that one should look at different from where we are in terms of our current results, is the NIMs are expected to slightly move up, one. Two, we do expect that the credit cost to settle down between 1.5 and 1.7 as we reach March, and we expect, therefore, the GS3 to improve from where it is to reach that kind of a situation. And summarily, we always expect that the second half of rural is the best from a cash flow perspective. And this year, given also that the elections in various states, et cetera, et cetera, we believe the rural support and on-ground activity at rural will support our thinking of why and how we think that it can lead to all of this. With an asset growth of 20%, I think overall, we feel that we have had a good quarter to start with, leading into the next two quarters, led by good positivity on the ground and as well as the good festival sentiments that we have witnessed. I think overall, I would say that we have a very positive outlook from here as to how do we think and project for the next two quarters. I think I would stop there and invite questions from all of you. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead. In your total AUM, what would be the dealer advances? Because I guess that would be interest free, right? Or they would not earn interest. That's why- So in the second quarter? It will be close to about INR 5,000 crore, is what we would have given as trade advance for the festivity, and you must link it to the retail improvement that you're seeing, which will get converted in this quarter. Okay, but this INR 5,000 crore is higher than the festive season last year. I know the quarters are not comparable or is this? See, I think the advantage is when the festivals come in two different months, the volumes normally are even much higher because they need to stock for two months requirement, right? And if it is both at the same month, it's a very different game. And last year, if you see, even availability was an issue as to why will they make so much of advance really available. Normally, it is about INR 3,000-INR 3,500 crore. This time it's INR 5,000 crore, because we have also grown, we have also grown in our market share, and more products are getting added. So I think you need to add all of that and correlate it to our disbursement growth and correlate it to our AUM growth. Got it, sir. Sir, and so the lending hikes, the lending rate hikes that you are talking about, they'll actually show their impact on, NII in the fourth quarter, right? Or will we see it in the third quarter as well? Because borrowing costs, as you said, are sticky. Yeah. So therefore, what would typically happen is, whatever increase that we will announce this month, let's say, some trickling will happen between November, December. Mm. But you're right, the larger benefit would then be seen from the fourth quarter, which is why I said as we come to March end, you would see the NIMs improve going up to 6.8+ kind of a number. Got it. And, sorry, just to clarify, just one last thing from me is the... You said that there was an additional provision of INR 3 billion made on the tractor portfolio. That's correct? No, no, no, no, no, not on tractor alone. I'm saying that not provision, it's INR 250 crore of NPA increase, which is, I mean, GS3 that would have increased. It is not, it is not from Q1, it is not only tractor. I'm saying largely driven by tractor, but from a provision perspective, it will not be more than kind of INR 100 crore. So if you look at our GS3 number, June was INR 3,770 crore- Mm. It has ended up as INR 4,024 crore. That was the INR 250 crore, INR 300 crore that I was talking of. The provision arising out of that will be about INR 120 crore-INR 130 crore type numbers. Got it. Because your ECL cover has gone up again, though it was very strong, right? Stage three, so. Yeah. So clearly, these are, see, these are temporary things. As the provision gets reversed in the next quarter, you will see this come back to the 60% type number. Okay. You mean the tractor or the NPLs related to this quarter? That means. Exactly. Because these are very, very temporary, because overall asset quality and overall on ground reality is that we don't see any deterioration. This is very temporary between 15th and 30th September, some delay in few markets, which would then react to maybe in the, you know, 15th of October, end of October kind of story. Got it. Okay, sir. Thank you. Thanks a lot. Thank you. Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead. Yeah, hi. Thanks for taking my question. Two years back, we sort of guided for, you know, doubling of loan book by FY 2024, sorry, 2025 end, and- Yeah. You know, probably tracking well on that. But I think on the profitability front, you know, we are below the guidance of around 2.5 times, sorry, 2.5% ROAs. So would you probably say that, you know, from now on, the focus kind of shifts towards profitability, and which is probably the reason why you are guiding for sort of 20% loan growth versus 27%, what you're doing right now? So, Nischint, if you kind of really look at it, the NIMs that you see a little compression, as I was explaining, I think by increasing the rates that we are talking of, to some extent we'll address that. And the product mix change that we were expecting for a better yield, which is more of a pre-owned vehicle growth, while the demand holds up, availability of pre-owned vehicle continues to remain a little challenge. And therefore, we are seeing a little compression of growth in the pre-owned vehicle segment. But we do expect that, you know, with the exchange program during festival et cetera, should wake up that, and that should help, improvement of the NIMs coming from that direction as well. What we have missed out is, we thought at least a 25, 30 basis points benefit we will get from the borrowing cost side from where we were. I think that's something which is getting a little challenging at this stage, maybe next year, if that comes through, then that's an additional benefit. At this stage, I don't think we are relooking at our return numbers any different from what we had committed, because if we do achieve this end credit cost of 1.5, 1.7 that we are talking about for this year end, you would see a substantial change to the profitability as well. You know, last, first quarter was a good quarter from even profitability angle. In this quarter, there is a dip of at least INR 100 crore, which is coming due to a temporary additional provision that we are carrying on a little increase in GS3 that we saw. That would get reversed in the third, fourth quarter kind of a situation. I, I'm not too worried about is there going to be a relook at a return level, and that's not the reason of the 20%-25% growth that we are talking of AEN. I think we continue to take a cautious look at the growth for a simple reason, that if the interest rate remains elevated, will we start seeing some drag in the marketplace from a demand perspective? Is something that we are seeing, but we are not relighting our market share positions. I think we are, we are holding on to market share. So if the volumes on the ground remains robust, our growth could be even better than what we are projecting for ourselves. So, somewhere you're probably saying that, look, the overall demand might come down if, you know, you and, you know, some of the other players kind of raise lending rates. Because I think your overall... Sorry. I think we should realign sometime in December after the Diwali offtake is completed, because that will give a very clear picture, because Dussehra was phenomenally positive. And, therefore, the sentiment remained positive at all dealerships. And if Diwali continues to go that direction, then probably our confidence to say that we are even willing to look at a 25% asset growth is something that we will re-discuss. Okay. Sure, that answers my question. I'll probably come back in the queue. Thank you. Thank you. Thank you. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead. Sir, thank you for giving me the opportunity. So I had a few questions. So number 1 was, on your credit cost guidance of 1% up to 1.7%. Is this what you're talking for the exit quarter or for the full year you are talking of for this year? We're talking for the full year. So if we are today at 2.3, let's say, as we close March, you would see that number look like a 1.5-1.7. Fair enough. Secondly, I wanted to understand more from, say, a medium-term perspective. You are retaining your 2.5% ROA guidance. Can you walk us through how it can... how you can reach there, the bridge over there, over the medium term? Because even if you say take 7% kind of of your gross spread, and then what is the kind of OpEx levels that you're looking at, and then the credit cost, and how are we arriving at 2.5% ROAs? Yeah. So if you kind of look at 7% as the spread or NIM, and then 2.5%, that takes us to 4.5. And if you were to look at a credit cost of 1.5, 1.7, that would lead us to that position of anywhere around three, minus the tax will lead you to that 2.5, 2.25, whatever that number we are talking of. Fair enough. And, you are retaining the growth guidance of roughly around 23%-24% CAGR, right? Because that is what would be implied by the doubling of asset book. That's right. That's right. See, so far we have not seen the price increase meaningfully from OEMs. So I'm reasonably sure next year, if they were to push up the prices of the vehicle, even the same volume will give us some additional disbursement. Fair enough. And sir, if I come to your slide number nine, over there, on the one hand, we are saying that we are targeting the relatively better quality of customers or slash the product segments. But if I look at your SME disbursements or even the others which are there, over there on a YY basis, there is actually a decline. Why would that be? No, so in the past we have had, you know, something called institutional lending, which was in the book. And if you recall, about a year back or so, we said we are going slow on that because of the market conditions. We believe that, you know, that segment may have a differential behavior, and we were not in a hurry to kind of jump into SME growth through that. And therefore, you will see that book run off, and the new book that we are building is all around, you know, our SME lending with LAP included. And therefore, honestly speaking, they are not comparable in nature, but if you were to remove the institutional part from our earlier book and then look at a SME comparison, then we have a healthy book. Can you, sir, help us quantify the quantum of that institutional book historically, so that we can have a like-for-like comparison? Vishal to get in touch with you. But if my number is right, we may have about INR 1,000 crore of institutional book left from some INR 2,000-odd crore or something that we had earlier, INR 2,300 or something, but don't capture this number. This is more indicative, but Vishal will give you exact numbers. Sure, sir. That's it from my side. Thank you. Thank you. The next question is from the line of Piran Engineer with CLSA. Please go ahead. Yeah, hi. Thanks for taking my question. Just firstly, on NIM improvement, what gives us the confidence of improvement? Is it simply a loan mix change?... and just related to this, what percentage of our loan book will still be at a higher yield, which will be, refinanced downwards? So, you know, as I was explaining, the NIMs improvement will come from two, three things. One is we are pushing up the rate for some of the product, some of the geography selectively, so that will by itself push it up. Second is, you know, the currently, you know, that customer has also asked, the book includes a trade advance of about INR 55,000 crore, which is non-earning, let's say. And as they convert to retail, that will also start bringing in the earnings, right, automatically. And the third is the product exchange, where we believe that pre-owned vehicle is not going to perennially be a non-available situation, and therefore, you will start seeing improvement or increase in growth of pre-owned vehicle, which comes at a better yield. So I think it's a mix of many things, it's not any one thing. We are not talking of a very substantial, what you call, NIMs improvement. We are saying we are at 6.6, we'll just go to a 6.8+ number. I think the answer is clearly yes. And then the following year is where the attempt to take it to seven will come. By then, the borrowing cost will start contributing also another 15-20 basis points. Okay. But sir, my only thing is, maybe you're, say, you're giving a car loan at 12, and now you start giving it at 12.5, but if the car loan that is maturing from the book is at 14, it is still a negative interest rate sort of hit, right? So, my question essentially came from that point of view. So I think the way we are seeing it, I think the past book is more or less kind of gone now, and if you look at it last two years, I don't think our rates were like before. So we are already used to this rate of 12%, 13%, 11% and all of that. So you should consider that even if the past book is running off, they are not 14%, 15% lending rate items. Got it. Got it. Okay. And so secondly, just in terms of disbursement growth, while near term, of course, festival demand is strong, we've not really expanded our branch count in quite a few years. So just from a sustainability point of view on, be it disbursement growth or AUM growth, what would be a driver, beyond, let's say, just price hikes? So let me just quickly tell you. Branches are not for disbursement, right? They are servicing units, so they are closer to customer to ensure servicing. The disbursement units are the ones that we interact with OEMs and with dealers, and they can be dealt with even if a branch is a little away from where we want to be. But that does not stop us from opening more branches. But for sure, you will see in the next six months, branches also getting opened. It's not that we are not going to. As you know, we have undertaken a transformation agenda, and that is causing us to relook at the way we want to structure our branches and the way we want to position our branches, and that's the reason we were a little slow on that. We are fairly on that job, but I can assure you that disbursement growth will not be hampered by branches not being open. Okay, okay. And just last question, last year, our credit costs were 1.2%-1.3%, and we've improved the loan mix towards better quality customers. Overall, the macro environment, I would say, is still as favorable, but we still have a credit cost guidance which is 40-50 basis points higher. So just wanted to understand the disconnect there. So there is no disconnect, Piran, Vivek, here. So a large part of that 1.2 was also facilitated by a significant writeback that happened last year. So if you look at slide 24, you will find it that in both stage two as well as stage three, between the two, almost INR 1,300 crore provision writeback happened. And that is also because from the beginning position to the end position there was a significant reduction in both stage two as well as stage three. But if you look at current year, we started the current year with a stage two of in and around 6%, stage three in and around 4.5%. From there, although some correction will happen and some improvements will happen, the expected write backs on account of lower provisioning on the back of further reduction in these two is expected to be lower. So then what is left in the credit cost is largely the credit losses. Now, if you look at the credit losses and look at the full year number last year, which was almost INR 2,200 crore, and if you look at H1 last year, which was INR 1,100 crore, look at the current half, it is almost half of, what we had to incur in H1 last year. So that's the trajectory we believe is more sustainable, and that's why we are guiding to a number which is in the range of 1.5%-1.7%. To an extent, 1.2% last year and the guidance of 1.5%-1.7% this year are not strictly comparable. Okay, so then I take it that a sustainable guidance, if the environment remains as good, would be 1.5%-1.7%. In other words, we will never go back to 1.2%. So we would, we would, because as you start seeing the new book that we are currently underwriting, and you touched on that, when they start building up and some of our past portfolio starts maturing, right? You will start seeing. And that's the reason you have seen the GS3 number and GS2 number both declining, right? So if you have a GS2 which shows continuous decline, the future GS3 will be lower than where we are today, and that automatically will lead to a much lower credit cost. What Vivek explained to you is a comparison between last year to this year, why and what happened. But if your overall GS2 is coming down, which automatically means the GS3 of future will be even lower than where we are. And, and further to that, Piran, even the credit losses, as the asset quality improves, credit losses, which we have experienced to be lower compared to last year, we can expect those losses to even go finer as we go into future years. Right. Got it. Got it. Okay, that answers my questions. Thank you, and all the very best. Thank you, sir. Thank you. The next question is from the line of Gaurav Sharma from Anand Rathi. Please go ahead. Good evening, sir. I have two questions. Number one was on the capital usage. Seems to be a bit sharp, so is it just related to the, lower profitability or something else as well? Is your question about capital adequacy, Gaurav? That's right, sir. Yeah. So I think, as you know, the profits in the second quarter are a little lower. So to that extent, the accretion to the profit will be lower. And second is, after the AGM in the second quarter, dividend payout happened, so to that extent, net worth has gone down. So as the profits build up in Q3 and Q4, the capital adequacy will once again improve. And the asset also growth is accelerating because of Q1. Yeah. Okay. The asset growth, especially at the end of Q2, to a question that was asked on the traded bonds level. So to that extent, yeah, the capital has got utilized, which will normalize in Q3. Right. Right. Sir, the second question was around the provisioning. So while you've already given your guidance that for full year you're going to be in a certain range, but if we look at the trajectory, it means like a sharp reduction from Q2 levels, first half levels. So, what sort of modeling are you building in? If you can just describe more in detail, because the dichotomy between the higher provisioning and improving asset quality still remains a bit puzzling for us. Yeah, so it's not that complicated, actually. So what we believe is that the reducing trend on credit losses that we have experienced in H1 will remain in that trajectory during H2. And there will be a recovery-led reduction in the stage three, which will primarily lead to a 1.5%-1.7% credit cost. Probably beyond this, I may not be able to explain. No. And, is that kind of already visible in the first month of this quarter, I mean, on a trend basis? Here, we are talking of prognosis for the second half, so I would not like to get to a very micro level discussion only for the first month of the third quarter. I hope you understand. But just, just keep one thing in mind, that always, historically, even previous year, the second half is always the best half for us, because most of the cash flows in this market starts to happen now, right after the monsoon, then you'll have the harvest, the money coming in, the infra contracting segment, payment starts getting released. They get closed by March when the government closure happens. So I think there's a lot of cash flows, and our tourism is during this period. So be rest assured that the cash flow of this market is also disproportionate compared to first quarter, the first half. Got it. Okay. I mean, those are my questions. Thanks. Thank you. We have the next question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead. Yeah, thank you. Good evening. Just wanted to understand on, on the credit cost side, I mean, enough and more has been discussed already, but if I just look at the write-offs number, it's broadly around INR 310 crore, last quarter, INR 350 crore this quarter. When can we expect this number to kind of start tapering off, given that we talk about a very healthy stage two and stage three? You think this, the trends in write-offs will sustain here, or is there a reason to believe, given that, Sir also talked about the fact that, there could be potentially a time where, we could even get to 1.2% credit costs once the new book that we are building, becomes a respectable proportion of the book. When can we expect these write-offs to kind of start tapering off? And then for a related question, is that, I mean, while the asset quality per se has improved, why is it that we're not seeing the provision coverage ratio kind of come down? Because I think the provision coverage ratio should be more a function of the underlying asset quality, rather than per se, the slippages that we see during the quarter. Yeah, you are right, but if you recall, in our provisioning on a contract, when it hits 18 months, we actually make an 80% provision. And, you know, once the overall GS3 number comes to, let's say, a 3% type level over a period, I think all this will get revisited. See, all this was introduced when we had a higher GS3, and we wanted to be prudent in taking higher coverage. Right? And we have got it down from 7%-6%, now to 4%, and as I was just explaining, we do believe that it has an ability to go down to 3%-3.5% over a period of time. As that happens, then many of the questions that you are raising will go away, because then settlements don't happen through repossessions, and therefore, the losses will come off from there. It'll be purely a function of a recovery and settlement that is beginning to happen… Right? And same will be true on that day when you, therefore, look at our LGD, that will also get corrected once, you know, it's a 42 months kind of a history that we look at. As you start seeing the past book as they run off, and each time a new year is added, and as you see the last two, three years, when they really come into active in the 42 months, you will start seeing this begin to happen automatically. The way you should look at it is that if the fundamentals are corrected and are being held at certain level, then the aggravated correction will happen as the book starts to run off from the past. Abhijit, to your first point on tapering off of write-off, you know, if you look at slide number 24, FY 2022 was INR 2,513 million, last year was INR 2,213 million. Last year, first half was INR 1,114 million. We are already 40% below that at INR 664 million. This number will not be zero ever. This is a business where there will be, you know, losses on settlement and losses on... and bad debts which move out. But the way in which we are originating today with the kind of, you know, composition mix of our origination with every month, as we see the overall NTC and subprime come down, this number is directionally already tapering down, and our guidance and our expectations will further, you know, go down. Perfect. Sir, just one last question. I mean, first one is a follow-up to what you've answered, that in your internal, estimates, I mean, I don't want you to put out a number to it, but, I mean, how soon can this ECL by EAD, which is 4% right now, start tapering down towards, three point five percent? That's the first question. And the last question for, Mr. Vivek Karve. Sir, while we have guided for, NIM expansion of, 6.6%-6.8% by the end of the year, just wanted to understand, given the fact that, I mean, we will do something- Yes, I request you to please rejoin the question queue for follow-up questions. We have the next question from the line of Raghav Garg from Ambit Capital. Please go ahead. Hi, thanks for the opportunity. Just one question, sir, which you had pointed out that you would maintain your guidance of 2.5% ROA for this year. So is that understanding correct? Sorry, I think that the question that was asked to us was March 2025, our target is 2.5%. Are we relooking at that? The answer is no, we are not relooking at it. We are confident that we will reach that 2.5%. It is not for this year. That the question that was posted to us was, March 2025, that we are looking at 2.5%, is it still... Are we holding to it? The answer is yes. Understood. And, did I understand it correct, that you may revisit your growth guidance for FY 2024 post Diwali? Because I think earlier you had mentioned a number of 20%. I'm sorry, I may not have understood it well. Could you explain again, if that's the case? Again, the question that was asked to us is, you know, if your disbursements are doing well, why are you talking of just 20%-25% AUM growth? For that, the answer was that, you know, with the interest rates remaining elevated, we have to also see how the Dussehra was extremely good. We'll see how the Diwali retails happen, and then we'll relook at what the OEMs projections are, and if required to relook at the number, we'll redo it for the board. Understood. Sir, my next question is on capital. So you've almost reached about 16.5%, and it's quite probable that the profit growth will remain lower than, you know, what your AUM growth aspirations are. Back in FY 2021, when you came to the market for capital raise, your Tier 1 was around the same level, 15.5%, I think. Do you anticipate raising capital in the next 1.5-2 years? For the next full year, definitely not, because we believe the capital adequacy continues to be quite comfortable. The circumstances under which the last capital raise was done was right in the middle of the Covid period, so I think they are not too comparable periods. It also is a function of growth, but as we see, at least for the next 1-1.5 years, a fresh capital raise looks unlikely. What would be the minimum Tier 1 that you're comfortable with? So, right now we are at 16%-16.5%, right? So profit will also get added and will aid the capital adequacy. So, I think we are in that ballpark even today. No, he's meaning that, at 4... 13- Thirteen. We reach 13- The regulatory- That's the time we normally reach. The regulatory is 10 + 5, so we are right now at 16 + 0.7 + 2, so the headroom is quite significant today. So between 12-13, you can say. Thirteen? Yeah, thirteen. Understood. That's all from my side. Thank you. Thank you. Thank you. The next question is from the line of Ashwani Agarwal from Edelweiss Mutual Funds. Please go ahead. Good evening, sir. Yeah, hi. Hi. Sir, Sir, we had guided earlier that there has been a change in strategy and there will be less seasonality in our books going forward because whatever changes we have done in the last one year. So, but if we see, if we go by the numbers, things have more or less remained the same, and I have been tracking the company for the last maybe 15 years... for maybe last 7, 8 years or a decade, we have been like not able to read the markets properly in terms of demand or in terms of cost of funds. So how do we read that? Because just few months back, we had talked about a decent growth and then suddenly the availability of used vehicles is less. Sir, sorry to interrupt, but we are losing your audio in between. If you could please use the handset while you're speaking. I'm audible now? Yeah, you are. Please go ahead. So I've been tracking the company for last 15 years. For last seven, eight years or so, I think we have not been able to read the business correctly. Just few months back, we had talked about the business with a change in the strategy and the business is actually to be less seasonal. And there was a strong demand for used vehicles. But how did we not read that the availability of used vehicles is not there? Maybe just three months ago, the tone was different. So was there any difficulty in reading the demand scenario, availability of the vehicles, or cost of funds? Because even in terms of cost of funds, this spike was not expected by the management, right? I think you have multiple questions in one question. So let us first take the pre-owned vehicle. So if you look at, I would draw your attention to slide number nine. So if you look at the pre-owned vehicles, the YoY growth in Q2 in disbursement is 20%, and in the first half it is 26%. So both these numbers are ahead of the total disbursement growth that we have posted. So 20% versus 13% for the full company, and 26% versus 20% for the full company. So I don't think we are deviating from the strategy. We have to focus a lot more on pre-owned vehicles. Because you can take that comment which Mr. Iyer made in the... Our internal targets are much higher. We wanted to, you know, have a higher growth. We are trending, and we are still in a leadership position in the market. Yeah. Yeah. So that was your first question, right? And the second question was about- Interest. The borrowing cost. So, we agreed that we felt that the borrowing cost will start easing out, but you are also witness to what's happening in the global markets, the kind of hardening that the U.S. markets have seen. And in a global—we are a global citizen, therefore cannot remain insulated from what happens in the U.S. And the firming up of the rates in the U.S. has had its implications on the Indian market also, and that's where the interest hardening has happened. Further, if you look at the guidances given by both Fed as well as the Reserve Bank of India, higher for longer is what we hear. And this is something which is being talked a lot more during the Q2 as compared to in the previous quarters. Our prognosis changes based on what we experience and what we witness in the marketplace. Sir, if we go by your word, that higher for longer, in that case, our cost of funds will go higher and we won't be able to pass on the rates after beyond at some point. So, do we expect some kind of a deceleration in the growth numbers, which you are expecting going forward in the second half of next year? So let me kind of state it more clearly. If the borrowing cost goes up for everybody, I'm reasonably sure that everyone will push up the lending rates. I don't think we have any doubts, right? So I don't think the growth has to be recalibrated only for us, just because the borrowing cost is going up and our lending rates will go up. Everybody will push up the lending rate. Will that lead to overall demand falling in the market? I think that's for the OEMs to look at, whether they will offer a discount like they did in the past. Will they offer some programs and maintain their demand? I think those things we will have to take it as it happens. As we stand today, we don't see a pressure of rates, ability to pass on the rates. It's our judgment call that we made a couple of months back to say, "Okay, let's not push up the rates pre-festival. As post-festival, the rates come down, then we may not have to do." And we are correcting ourselves to say, "No, we don't see that rates are going to come down." And we are not saying tomorrow morning the rates are going to go up. It may go up in three months time, six months time, but we are not going to wait for six months to increase our rate. We are already doing it. So I think these kind of judgment calls will be made. Sometimes it may go right, it may go wrong, but I think it's not appropriate to conclude that we will not have the ability to pass on the borrowing cost. Yes, that ability will not be there if we are the only ones who are going to suffer from that. But if, if the cost is going to go up for everybody, beyond a point, people are not going to just absorb it. Today, most of the players are absorbing it. I think reasonably, I'm sure post Diwali, you'll start seeing everybody increase the rate. Thanks a lot. Thank you. The next question is from the line of Sanket from DAM Capital. Please go ahead. Yeah. Hi, sir, good evening. So I have two questions. One is on, say, margins. While we say we maintained on the threshold for FY 2025, while on AUM and OPEX we might be able to achieve it, but we have modified the margin guidance, so we are saying 7%, right, for next year, that's about 50 basis points lower. So if at all you maintain 2.5% ROA, then the improvement needs to be there on the credit cost side. Is that correct? And is that the place wherein confidence comes from, the credit cost will make up for the margin loss? Yes, absolutely correct. I mean, if you look at our GS3 and GS2 numbers, they are improving and they are better than what we originally set out for ourselves, right? So we said we will be, we are seeing, you know, that is already at 4%, so it will go even below that, is what we are seeing. So that would translate automatically to a lower credit cost, leading to a better ROA. While we may not cover it through the NIMS, but it will be more than covered through the credit cost. Okay. So the follow-on question on that is, sir, so that target is to keep it below 6%. We are already at 4.3, and if we add up, say, Stage two as well, the 30 DPD+ is around 10%, which is better than what we used to have pre-COVID. Then why, since last two quarters, we have been hard pressed to keep the Stage three at the same level and rather take the hit on PNL? If it's, we are so certain of write- back saying second half, maybe some inch up in Stage three would have been business as usual, as we have seen in previous years. Why, why? Yeah. No, so, you know, I think one of them asked this question. If you look at we are carrying on an 18-plus contract, we are carrying a much higher coverage of 80%. That's what pushes this up. As we see the past book fully getting corrected and all the new book comes where we don't see too many contracts beyond 12 months, et cetera, et cetera, we will revisit all these numbers. I mean, maybe another three months, another six months, we will start relooking at this and bring it down to a coverage level which is most appropriate. Because if you have a GS3 numbers hovering around 3%-3.5%, then, you know, maintaining just a 40% cover or a 45% cover could also be adequate. But that will be all driven by formula, as you know, because it's a 42-month historical data which gets captured to arrive at this number. Up to COVID period, as you all know, that we had higher write-offs and things like that. As those years pass by, and as we start more kicking into 2021 as the base year, 2021, 2022, 2023, 2024, you will see this naturally get corrected also. Okay. So as we move in deeper into the normalized macro, if you are not to hit any disruption, the LGD base requirement of the formula that NPL throws, that could come down, is what you suggest, and this is which the credit cost could be below normalized? Yeah, that is clearly reflective of our stage one and stage two today, right? Yeah. Yeah, sure, sir, that was my question. Thank you. Ladies and gentlemen, we have two more questions in queue. The first comes from the line of Kunal Shah from Citigroup. Please go ahead. Yeah. Hi, sir. Sorry, again, with respect to stage two and stage three, currently at, say, 10% odd. Now, given that we are aware in terms of the profile which is getting built, more towards the lower yielding asset pool, where do we actually see this settling in this kind of an environment? I think that's what is something which will drive the credit cost down to 1.5%-1.7%, because I think write-offs will still continue to be at similar levels of 300-350 odd INR crore per quarter. Yeah. It is about 4.3 and 6 around, so therefore the 10. We believe that with changing portfolio, et cetera, the GS3 could be somewhere around 3%-3.5%, and therefore, the Stage 2 could be somewhere between 5 and 5.2 or whatever. So 8%-8.5% should be definitely achievable as we progress. So that is still possible. So we could see that, similar kind of an upgrade- Yes. -which we see in second half. Given that we have already got it down or we have contained it in the first half, it's not necessary that getting it down from here on will be difficult. But don't take it for this quarter, next quarter type. I think we are- Yeah. We are moving towards our March 2025 commitment. I think we will see that happen during the course of that quarters. Sure. And, secondly, with respect to OpEx to assets, because that is going to be the another lever to manage the ROAs at 2.5%. So last quarter also, you highlighted we will see the inch up, and post that, we will see the moderation getting into 2.4%. But maybe it's still stabilizing at 2.8 odd% level, so should we start seeing the leverage play through earlier than what we anticipated? Or still there are investments which will be done over the next two quarters? So Vivek will take you through, but it'll take some time. We are still in the midst of our transformation agenda, investments in technology, investment in data, all of that is happening. We... See, while it sits in OpEx, I very strongly see it as an investment towards a better portfolio future. But anyway, Vivek will kind of take you through more details. So, Kunal, we are not expecting a sudden moderation. So, the 2.8 levels that you are seeing for the first half are likely to continue for the balance of the year, at least. They may inch up a little, as you know, our investments are getting accelerated. But as Mr. Iyer rightly said, these are investments and these are not expenditures. Therefore, they will start paying off over the next couple of years. So the benefit will not be necessarily seen in the current quarter and maybe even the next year, but you'll certainly start seeing that benefit, starting FY 2025, 2026. Okay, got that. So maybe that 2.5% for FY 2025, you are saying maybe that would also not, maybe that also still the investments will be on? So, Kunal, when we created this mission by at the beginning of April 2022, this is an aspiration that we have, and we would make every attempt to meet it. Some parameters we will exceed, some parameters we may lag. Sure. The whole attempt is to be there at the end to deliver a 2.5%. I think ROA is the target that we are holding on to strongly. Okay. Okay. Asset quality. Yeah, okay. Okay, yeah. Thanks and all the best. Yeah. Thank you. Ladies and gentlemen, we will now take the last question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead. Yeah, thank you so much for allowing me to follow up. So what I was kind of trying to understand that point in time, and I think it partly answered in the last two questions, is that when I look at the PCR and not just the stage three provision cover, I'm even referring to your stage one and stage two provision cover. Given your visibility into the customer mix, given your visibility into your ECL model, which, which considers the last 42-month data, in, I think what you were trying to suggest to some of the previous participants, is that within the next 3-6 months is where we should start the provision cover, even on stage one and stage two, to start coming down. Was that the right understanding? No, no, Abhijit, that's not the right understanding. As you rightly pointed out, stage one and two is both a function of PDs and LGD. So, our analysis and our numbers suggest that it will take at least another nine months before the LGD cover starts improving, because the LGD has been impacted because of the COVID period. So, it will stabilize only in the latter part of next year. But on PD, because of the much healthy reduction in the early delinquencies, the PDs have been sequentially improving for us. Got it, sir. Sir, just one last question for you. Given that we've already guided for NIMs to expand from 6.6% as on H1 to 6.8% by March 2024, I just wanted to understand, I mean, cost of borrowings, I mean, over the next two quarters, how are they likely to trend, given your visibility on your liability mix and based on what is kind of coming up for renewal maturity? And when can we reasonably expect the cost of borrowings to start flattening? You are asking me a question which I'm not qualified to answer, very frankly. But, I think, the reset costs every time the borrowings were getting replaced with new borrowings, that impact was quite large in the first half. So going forward, the impact of the reset is likely to be much lower as the liability character keeps changing. However, we still believe that it is not likely that the borrowing costs will start sliding quite immediately. Our attempt will be to always maximize the PSL route and therefore try and borrow at finer rates given the benefit that we have on the acquisition side. So, I'm sorry, but very difficult to predict or provide you a prognosis as to when the borrowing costs will start sliding down. We hope they'll start doing it earlier, but beyond that, I don't think I am qualified. You know, your earlier speaker said we are already proved wrong once. So No, sir, but there you also said that it is about maybe a judgment call that we take, right? And it's okay to go right, go wrong at times. After all, you are running a business. At this stage, with what we are reading, hearing, understanding, it looks unlikely that it's going to come down in the next three months, six months time. At least another... next financial year. This financial year is not visible at all to bring down. Maybe it's after that. Unless you are hearing some other commentary, happy to understand that better. I think, sir, this is all. Thank you so much, and wish you and the Mahindra Finance team the very best. Thank you. Thank you so much, friend. Thank you. I would now like to hand the conference over to Mr. Anuj Singla for closing comments. Over to you, sir. Thank you, Darwin. Mr. Anuj, any closing remarks before we conclude? So I think, you know, hearing all the questions, I thought it may be useful to just rephrase and re-summarize the whole thing, which is: We are confident that our asset growth would be in the ballpark upward of 20%+, and maybe post-festival, we'll feel happy to relook at that. Clearly, with the kind of collection efficiency we see and the kind of levels of GS3 that we are in, and the level of Stage 2 that we are in, we are pretty confident that as we close March, we should not be beyond 1.7%, that is 1.5%-1.7% as a credit cost. We will make every attempt to see what can be saved on the OpEx, but we strongly think that it's a conscious spend that we are doing as an investment to make sure that we build stronger base for the growth trajectory that we are looking at. And, we continue to remain, very buoyant in terms of growth opportunity in the market that we are representing. And the NIMs pressure that we are currently witnessing from the numbers that you see, have two or three conscious calls, which is, one, that we are getting into a mix of customer, which will be more stable for sure going forward. Two, a product mix change with better availability of pre-owned vehicles will help us improve yield. Increasing the lending rates in certain products, certain geographies, certain segment, will also help us improve the margins. And then, of course, whenever the borrowing cost comes down, we'll further improve the margin. So overall, we remain committed to the ROA returns that we had committed for 25 and the balance sheet growth that we had committed there. And for an immediate basis, closing March, I think we are confident to restate that 1.5%, 1.7% as a credit cost with an asset growth of upward of 20% is the visibility that we have. And thank you, everyone, for taking this call. Anuj, I also take this opportunity to wish everyone on the call a lot of festivities during the Diwali festival. Happy Diwali. Happy Diwali to all of you. Watching the World Cup finals with India playing on one side. Thank you. Thank you, sir. Over back to you, Darwin. Thank you. We now conclude this conference. Thank you all for joining us. You may disconnect your lines.