M&M Finance defers its Q4 results after unearthing Rs 150-crore fraud

Original source (on modern site) | Article images: [1] [2]

Mumbai: Mahindra & Mahindra Financial Services (M&M Fin) indefinitely deferred fiscal fourth-quarter results after discovering a ₹150 crore vehicle loan fraud at one of its branches in the Northeast, sending shares of the non-bank lender nearly 8% lower.

According to the company, the fraud involved the forgery of KYC (know your customer) documents to embezzle company funds.

"Investigations in the matter are at an advanced stage. The company estimates that the financial impact of this fraud is unlikely to exceed ₹150 crore... necessary corrective actions have been identified and are at various stages of implementation, including the arrest of few persons involved," the company said in a post-midnight regulatory filing.

Shares of M&M Fin fell as much as 7.9% in early trade on BSE but later recovered to close nearly 5.5% lower at ₹263.60 apiece.

M&M Fin said due to the discovery of the fraud, agenda matters concerning approval of financial results for the fourth quarter as well as for the financial year ended March 31, recommendation of dividend, AGM and related matters, which were to be considered at a board meeting on Tuesday are being deferred to a later date which shall be intimated in due course.

However, the company's audit committee and a board meeting to consider other matters like an increase in aggregate borrowing limits and fundraising through the issue of non-convertible debentures will take place as per schedule. The company did not specify the branch where the fraud took place.

Agencies

Macquarie analyst Suresh Ganapathy said the latest development underscores his scepticism on M&M Fin. "MMFS was portrayed as a turnaround story...(but) the reality is different. Changing a business model is not easy...Such kind of incidents destroy investor confidence and it's a herculean task to re-establish credibility and trust," Ganapathy wrote in a note on Tuesday.

Under M&M Fin's Vision 2025 goals, the company expects to achieve a return on assets (RoA) of 2.5%, raise the share of used vehicle financing in its portfolio to 15%, and start new businesses like SME financing and leasing. Ganapathy said delivering 2.5% by next year amid slowing growth, margins and episodes of fraud in an inherently volatile business model is a tall ask.

"We remain sceptical and maintain our guarded stance...Assuming that MMFS provides for the impact this quarter, we would expect about 15% profit before tax decline to our 4Q estimates (₹1,002 crore). From a qualitative aspect, we believe issues such as regulatory non-compliance or fraud inhibit re-rating as investor confidence takes a hit. Unless governance and compliance structures are strengthened, longer-term re-rating will remain elusive," Ganapathy said.

In September 2022, the Reserve Bank of India asked MMFS to cease recovery or repossession activity through outsourcing arrangements citing "material supervisory concerns".

Ganapathy said M&M Fin needs to lower credit costs to 1.4% from a long-term average of 2.5%, operating expenditure to 2.5% from the current 2.8% and improve margins to more than 7% from 6.8% to achieve 2.5% RoA, which is an onerous task.

< Back to 68k.news IN front page