Lower disbursements (VAF down 67% yoy) and collections (75% of customers under moratorium) directly suppressed large cost components like travelling, commissions and conveyance. Renegotiation of fixed costs (rentals, outsourced services, etc.) and reduction in discretionary costs (advertising, etc.) also pulled down the opex. On-roll manpower has been...

20 July 2020 Mahindra Finance (MMFS) reported 1QFY21 PAT of INR1.6b (up 128% YoY; down 29% QoQ), a 3% miss. While PPoP beat our estimates by 25%, higher-than-expected provisions at INR8.4b led to the modest PAT miss. While the value of assets financed declined sharply, we note the decline in Tractors was much lower (35% YoY). Around half of the opex cut is sustainable, as per management. Gross Stage 3 assets increased 75bp QoQ to 9.2% due to slippages from tractor owners who had not availed moratorium. provision coverage to 40% QoQ from 31%. ECL% increased to 5.5% v/s 4.4% in 4QFY20 and 3.6% in 1QFY20. MMFS is comfortable on the ALM front, with liability repayments of INR54.7b in 2QFY21, against a cash balance of INR85b.

MMFSL is one of leading Non-banking Finance Companies (NBFCs) with customers primarily in the rural and semi urban markets of India. MMFSL benefits from its close relationships with dealers & its longstanding relationships with original Equipment Manufacturers (OEMs) which allow it to provide on -site financing at dealerships. MMFSL is primarily engaged in providing financing...

Credit cost came in substantially higher at | 674 crore including contingent provision of | 574 crore related to Covid. Amid Covid, seasonal improvement in asset quality in Q4 was absent with GNPA remaining stable at 8.4%. Consequently, PAT declined 62% YoY to | 220.9 crore. Collection efficiency dipped to ~15% in April 2020, improving in May to ~30%. Also, ~75% customers opted for moratorium while ~28-30% branches/ customers are in red zone. Management expect any normalisation in business volumes to happen only post October 2020 with initial traction in...

Inexpensive valuations underpin our BUY (TP of Rs 228, 1.4xFY22E ABV + Rs 18 for stake in MIBL) MMFS business and asset quality performance, and consequently earnings were hit by COVID-19, despite 4Q being a seasonally strong qtr. Operating performance is likely to be subdued in the near term. Elevated provisions are likely to persist, weighing down on earnings. A deep rural presence, capable collection infrastructure (as seen in the past) and relatively easy access to funds are positives.

30% in red zone) should further weigh down on asset quality and earnings over FY21-22. Consequently, GNPA & credit costs estimates stand marginally tweaked to (7-8% vs 7.5% earlier and 2.4%+ vs 2.3% earlier resp.) prompting to trim EPS estimates by 2-8% over FY21-22E. With return profile (RoE: 9%/RoA:1.2%) offering no respite, we reiterate REDUCE rating with SoTP...

16 May 2020 MMFS 4QFY20 PAT of INR2.2b (down 62% YoY), a 40% miss. The miss in PAT was led by a contingency provision of INR5.7b (we factored in ~INR2.2b) related to COVID-19. Of INR5.7b, INR4.7b was used to increase PCR (800bps QoQ to 31%) for GNPA. Pre-provisioning profits grew 24% YoY (beat of 14%) to INR9.7b as opex (27% beat) declined 24% YoY to INR4.2b. Net income missed our estimate by 3% as loans stood largely flat QoQ (+6% YoY) at INR650b v/s the expectation of ~2% QoQ growth (on March- end COVID-19 restrictions). NIMs/GS3% came in flat QoQ at 7.7%/8.4%.

MMFS looking at converting its 85 regional offices to 4-5 large service centers in order to reduce fixed expenses, along with other measures. We revise our estimates for FY20-22E and arrive at a target price of Rs....

NII grew 13.4% YoY/ 6.8% QoQ, due to reduction in borrowing cost. Provisions increased 78.1% YoY/10.9% QoQ, due to extra provisioning given challenging economic conditions Asset quality remained under pressure as GNPA/NNPA ratio declining sequentially at 7.6%/6.0% in Q3FY20 (vs 7.2%/5.8% in Q2FY20). We rolled forward the valuation to FY22E and arrive at a target price of Rs. 416 based on SOTP, retain our BUY rating on the stock. NII aids bottom line, partially offset by higher provisions...

The extent of deterioration in asset quality was surprising, given the usual seasonal trends and the creditable progress made by MMFS until now. NIM improvement and growth trends were positives. As always, MMFS' performance is highly correlated with rural macros. MMFS stands to gain from any improvement here. MMFS 3Q earnings were slightly ahead of estimates, even as provisions remained elevated YoY (+11% QoQ). NIMs expanded QoQ after a prolonged fall and AUM growth was healthy. The increase in GS-III disappointed. Maintain BUY with a TP of Rs 425 (2.25x Dec-21E core ABV of Rs 181 + Rs 18 for MIBL)

28 January 2020 MMFS reported 3QFY20 PAT of INR3.7b (+15% YoY) a 6% miss. Better- than-expected margins (NII beat of 6%) and opex performance (4% beat) led to PPoP beat of 13%. However, contingency provision (for customers who have a prolonged default history) of INR940m led to a PBT miss of 4%. Adjusted for the same, the PBT beat was 14%. (a) Loans were up 2.5% QoQ/12% YoY. (b) Spreads were up 10bp QoQ (9M v/s 1H). (c) Asset quality disappointed with GS3% up 60bp QoQ to 8.5%. (d) Share of securitization in borrowings increased to 15% from 12% last quarter. MMFS remains comfortable on the funding side. However, near-term growth challenges will remain with pressure in the underlying segment. We cut our estimates by 5% (led by higher provisions) and factor in ~13% AUM CAGR with RoA/RoE of 2.2%/15%.

Value of assets financed declined 10.2% YoY to Rs. 10,856cr Net Interest income grew 9.0%/1.5% YoY/QoQ in Q2FY20. Higher operating expenses and provisioning were the main reasons behind adj. PAT declining 6.7% YoY to Rs. 356cr in Q2FY20. Asset quality improved as GNPA/NNPA ratio improved to 7.2%/5.8% in Q2FY20 (vs 9.0%/6.0% in Q2FY19). We value the company at a target price of Rs. 412 based on SOTP, and retain our BUY rating on the stock....

We are not too disconcerted by slower growth this qtr, and our estimates over FY20-22E remain largely unchanged. Stable asset quality is creditable (incl. higher WOs) and reflective of sustainability of improved collection efforts. Oscillation in LLPs and non NIMs continued. Valuations remain attractive at 1.6x FY22E ABV, especially with estimated RoAAs of ~2%+ over FY20-22E. Maintain BUY. 2QFY20 saw slower growth (expected). Stable GS-III (7.2%) was creditable, partly aided by higher WOs. The dip in NIMs (to 6.9%) was disappointing and unexplained. Maintain BUY with a TP of Rs 417 (2.25x Sept-21E core ABV of Rs 178 +Rs 18 for MIBL).

(credit cost of INR3.6b v/s our est. While the GNPL ratio improved by 20bp/180bp QoQ/YoY to 7.2%, it was on account of a write-off of INR3.4b. The value of assets financed declined 8-10% QoQ/YoY to INR97b. The decline was driven across segments, barring pre-owned vehicles. basis, the mix remained largely unchanged, with car/UV and tractor financing comprising 46%/16% of total AUM. Spreads declined 40bp YoY to 7.1% driven by 40bp increase in cost of funds to 8.6%. Cost to income ratio was up ~360bp YoY to 39%. MMFS securitized INR25b in the quarter - the share of securitized assets increased from 9% to 12% of total borrowings QoQ.

Deep rooted upcountry presence, tie ups with OEMs and ample availability of funds will enable MMFS to grow (m-share gains) in spite of OEMs' woes. Vulnerability to rural stress remains. We reduce multiples (2.25x Jun-21E ABV vs. 2.75x earlier) due to increasing macro turbulence and oscillating coverage (that precludes a meaningful understanding of expected credit losses). A sharp rise in provisions (vs. reversals in 4Q) ate into PAT (Rs 684mn, -75/88%). Strong AUM growth (+22/7%) in spite of weak auto sales surprised. MAINTAIN BUY with a TP of Rs 399 (2.25x Jun-21E core ABV of Rs 200 +Rs 18 for MIBL).

MMFS reported PAT of INR0.7b, significantly below our estimate of INR3.2b, due to higher-than-expected operating expenses and a sharp jump in provisions. As 1Q is a seasonally weak quarter, the These two factors resulted in an unexpectedly high credit cost of INR6.2b for the quarter. Despite a slowdown in OEM volumes, MMFS has been able to deliver strong AUM growth, driven by its diversification into new product segments (such as pre-owned vehicles and CV/CE) and increasing share in different OEMs. While the company is likely to gain market share, we expect AUM growth to moderate to 14% YoY by year-end. Asset quality performance has been in line with expectations; however, up- fronting of provisions on stage 3 assets and movement within stages 1-3 of loans (based on macros) are likely to keep credit costs volatile. We cut our estimates for PPoP by 5-7% and PAT by 15-18% to factor in higher credit costs.

AUM growth remained healthy at 22% YoY to | 71406 crore, led by traction in auto loans, particularly CV/CE and tractor segment. However, disbursement growth remained muted at | 10598 crore, up 3% YoY due to cautious curtailment in SME lending & slowdown in auto sector. Overall asset mix remained broadly stable with CV gaining prominence over SME. The management has guided 10-12% YoY growth in advances for FY20E. Within subsidiaries, growth reported by Mahindra Housing Finance witnessed a slowdown with 11%YoY growth in advances & 7% YoY degrowth in earnings to | 7872 crore and | 29 crore, respectively. Pressure on...

A sustained and relentless focus on collections translated into sustained asset quality improvement. Vulnerability to rural stress persists, although reducing. The impact of upcoming elections and monsoon are key monitorables. In spite of continued mkt share gains and subdued competition from smaller NBFCs, we expect lackluster auto growth to impact MMFS. Better than expected improvement in asset quality (GNPAs: ~5.9%) and provision reversals (~Rs 1.15bn) drove PAT (+95/88%). Maintain BUY with a TP of Rs 504 (2.75x Mar-21E ABV of Rs 177 + Rs 18 for MIBL)

Healthy advances growth at 26% YoY to | 61250 crore, led by auto loans, particularly CV/CE & tractor segment. Disbursement growth remained muted at | 11725 crore, due to cautious curtailment in SME lending. Overall asset mix remained broadly stable with CV gaining prominence over SME. The management has guided 10-12% YoY growth in advances for FY20E;...

Improvement in asset quality was the key positive in the quarter. This was also reflected in volume terms, with the number of NPL contracts down ~30% QoQ. However, MMFS lowered its PCR on Stage 3 GNPLs to 19% from 27% in the prior quarter, which Over the past six quarters, MMFS has witnessed a significant improvement on most parameters AUM growth, margins and asset quality. The company has been gaining market share across all existing products and has expanded into newer products like pre-owned vehicles and CV/CE. NPLs have declined to a multi-quarter low. With strong AUM growth, improved branch productivity and low credit costs, MMFS is likely to maintain 2.5% RoA/16% RoE over the medium term, in our view. Value of assets financed for SMEs declined sharply from INR18b to INR1b, while that in vehicle finance increased 16% YoY to INR116b.