M&M Financials slumped after the company, for Q3FY14, reported a much worsening asset quality and higher provisioning. Its net profit fell 18% to Rs.164 crore and this was due to a 120% (YoY) and 42% QoQ rise in provisioning and write-offs at Rs.180 crore. The company has stated that cash flow of borrowers in South India was impacted and this resulted in delayed payment. Consequently, this led to a rise in NPAs – gross NPA rose from 4.1% to 4.7% (QoQ). The company has explained that delay in announcement of MSP for soya and cotton put pressure on cash flows of borrowers in rural markets due to which it had to repossess some heavy CVs and stress was seen also in 3-wheeler segment. But the management has stated that with good MSP being announced, Q4 could see a reversal in the tide for the good. It expects better asset quality in Q4.

In current Q3, NIM fell from 8.9% to 8.4% (QoQ). Its ‘other expenses’ also showed an exceptional increase, of 39% (YoY) and this was on account of one-off costs like Rs.9 crore on TV advertising, Rs.4-5 crore on recovery charges and higher stamp duty in some states. Looking ahead, earnings are indeed expected to get better in Q4 but improvement in asset quality, one would have to wait and watch.