Mahindra Finance Flags Softer Tractor Demand as Drought Risk Builds Over Festivals

Mahindra & Mahindra Financial Services, India's leading tractor financier among banks and non-bank lenders, flagged weaker demand, with tractors possibly hit harder in the festive season. The company's tractor business is "very closely tied to the local economy," says Raul Rebello, Chief Executive, during the earnings call on Wednesday. 

The company's tractor disbursements grew 13 percent in the September quarter, the slowest of the vehicle segments, Rebello said. Total disbursements grew 22 percent.

For context, passenger vehicles grew 28 percent, three-wheelers 32 percent, commercial vehicles and construction equipment 16 percent, and used vehicles 15 percent.

"It's not been secular. I would say that maybe tractors have seen a little more decline than last year," Rebello said, giving his "early reading of the first 10 days of Navratri". However, he did not give specific figures.

Rebello cautioned against reading too much into the comparison. Last year's festive demand was inflated by pent-up buying around the GST changes; "a lull before the storm", he said. At the July annual general meeting, he had called growth in the first half of FY26 "very muted", adding that it returned only after the festive season and the GST announcements.

Tractors were 12 percent of Q2 disbursements, or ₹1,979 crore, and 12.2 percent of business assets by the end of September.

Registration data show rural growth ahead of urban in every category in the first half, Rebello said. Rural and semi-urban markets grew at a "marginally higher clip" than urban and metro markets through September. "I do not think that we are discounting rural sentiment as a whole right now," he said.

Drought Watch

In contrast, 282 districts have been classified as drought-prone, and the company is watching drought conditions in three states, per Rebello. Given the tension in Maharashtra, he called the state a significant market and said collection teams in Vidarbha are meeting customers to gauge their stress. In the September quarter, the company "reduced some of the funding" in stressed locations, he said, and has been augmenting collection there.

Some categories, such as tractors, have seen sentiment hit in past droughts, he said, and "we will see some of that play out."

The Repayment Test

Tractor loans in farming areas typically carry half-yearly instalments, timed to price discovery at the end of the Rabi and Kharif seasons. "We're not in any of that right now," Rebello said. "In a couple of months, we'll be coming to the half-yearly collection."

He couldn't yet say whether early stress is showing. "But I wouldn't be surprised," he added, noting that farmers' priorities typically change in a drought year. "Delay is not equal to default," he said, though a delay "might mean a GS2, GS3 increase".

The company's presentation, however, does not break out tractor asset quality. Across the company, gross stage 3 assets were 3.42 percent of loans in September, against 3.94 percent a year earlier.

The company holds management overlays of ₹852 crore, created during FY26 and including ₹217 crore in the March quarter. They sit within standalone expected credit loss provisions of ₹4,150 crore. 

Rebello said the buffer built in the March quarter was meant for El Niño and West Asia risks, and that he sees no need "to create additional ones right now".

Staying the Course

At the July annual general meeting, Rebello said tractors and used vehicles "inherently have a higher margin profile" than some other segments. He also said the company had "steadily gained" market share in tractors.

He asserts that the company will stay in tractors, which Rebello called one of its most attractive products on return on assets across cycles. 

However, he said the company will "not chase any growth at the cost of either price or risk" across its wheels business, which is about 80 percent of lending. "If we see a drag there, fall off, we will, of course, and not go against the tide," he said, when asked about growth over the next four to six quarters amid drought concerns.