TMB - Tamilnad Mercantile Bank Limited Share Price

Management Outlook and Major Points:

1. Financial Performance:

• Profitability: Operating profit grew 10% YoY to Rs.408 crore; net profit crossed Rs.300 crore (+6% YoY). Net interest income rose to Rs.570 crore (+6% YoY).
• Asset Quality: Gross NPA improved to 1.32% (-37 bps YoY), net NPA to 0.41% (-57 bps YoY). PCR increased to 69.07%, targeting 70% by March 2025. SMA + NPA reduced to 5.09% (from 7.03% YoY).
• Capital & Liquidity: Capital adequacy ratio rose to 29.35% (+340 bps YoY); liquidity remains robust with a leverage ratio of 6.5%.

2. Business Growth:

• Advances: Grew 13.7% YoY, driven by agriculture, gold loans (+35% YoY), and MSMEs. Focus on secured lending (92.39% of portfolio).
• Deposits: Growth doubled to 7.7% YoY. CASA remained flat; bulk deposits at 11%. Initiatives like Global NRI Center and Transaction Business Group aim to boost low-cost deposits.

3. Strategic Initiatives:

• Expansion: Opened 20 branches (target: 40 in FY25); credit automation and turnaround time reduction prioritized.
• NRI Focus: Targeting NRI deposit share increase from 4.5% to 10% in 2"“2.5 years.
• Tech Modernization: Implementing vendor management systems, branch automation, and credit rule engines to enhance efficiency.

4. Future Guidance:

• NIM: Expected to moderate to 3.75"“3.80% (vs. 4% in Q3) due to rate cuts and deposit cost pressures.
• Profitability: FY25 net profit growth guided at 10"“12%; ROA may settle at 1.75% (vs. 1.89% in Q3).
• Costs: Cost-to-income ratio likely to rise to ~50% (from 46.3%) due to tech investments.

5. Risk Mitigation:

• Low unsecured exposure (0.5% of loans) minimizes delinquency risks.
• Stressed assets (NPA + restructured) at 2.16%; slippages reduced to 13 bps in Q3.

Outlook: Management remains confident in sustaining double-digit business growth, improving deposit momentum, and maintaining asset quality while investing in digital transformation.

Question 1: "Sir, our SMA-2 has inched up a bit in this quarter. So any particular contributor to that or if you can throw some color on that?"
Answer: SMA-2 increased marginally due to multiple small accounts, not a single large account. It remains within manageable trends and is already showing a downtrend in the current month. Year-on-year, SMA-2 declined from Rs.561 crores (Q3 FY24) to Rs.537 crores (Q3 FY25).

Question 2: "Given CD ratio at ~86%, how do we sustain advances growth with muted deposit growth?"
Answer: Incremental CD ratio improved to 106% in Q3, showing moderation. Leverage remains low (6.5%) due to strong capital (Rs.8,715 crores net worth). Initiatives like Global NRI Center and Transaction Business Group aim to boost deposits. Advances growth (13.7% YoY) will align with deposit growth (targeting 8%+), aiming for sustainable CD ratio near 100%.

Question 3: "What are the initiatives taken in terms of ESG?"
Answer: Automation of vendor management and operational processes (e.g., electricity, vehicles) to measure Scope 1-3 emissions. Partnering with a startup for emission assessments by Q1 FY26.

Question 4: "How will NIMs, ROA, and profitability trend amid rising deposit costs and economic headwinds?"
Answer: NIMs may moderate to 3.75-3.8% in FY26 (from 4% in Q3 FY25) due to higher leverage but compensated by volume growth. ROA may settle at 1.75% (vs. 1.89%). Profitability growth (10-12% for FY25) hinges on tech investments and business expansion.

Question 5: "What is the growth strategy for retail/MSME amid economic uncertainty?"
Answer: Focus on secured lending (99.5% of portfolio) via automation, faster turnaround, and credit management centers. Gold loans grew 35% YoY; MSME/retail will drive growth with low unsecured exposure (0.5%).

Question 6: "How will cost-to-income ratio and ROA/ROE trend with rising leverage?"
Answer: Cost-to-income may rise to ~50% (from 46.31%) due to tech investments. ROA likely at 1.75% with higher leverage; NIM compression offset by volume. Advancing geographic expansion and process automation aim to sustain valuations.

Question 7: "What is the corporate loan exposure and strategy?"
Answer: Corporate loans are <8% of advances, deemed low-yield and competitive. Focus remains on secured MSME/retail lending. The "others" segment (corporate) saw 5.17% YoY degrowth to minimize stress.

Question 8: "How will investor confidence improve amid low valuations?"
Answer: Demonstrating consistent growth (10.4% business, 13.7% advances in Q3) and transformation via tech automation (e.g., credit underwriting, deposit initiatives) aim to rebuild confidence. Branch expansion and reduced turnaround times to enhance market penetration.