Mahindra & Mahindra Financial Services Ltd. share price target

The GS 2/3 loan ratio declined 150bp/100bp QoQ to 12.5%/9%. The company reduced Stage 1/2 provisions by 100bp to 2%, but increased Stage 3 provisions to 58% (from 37% QoQ). The number of customers that had not made a single payment during the quarter declined to ~47k in 4Q from ~90k in 3Q. Also, only INR3b ECLGS and INR0.5b restructuring were undertaken during the quarter. MMFS had ~INR58b GNPLs pre-COVID and has ~INR58b GNPLs currently. However, it had only ~INR25b total provisions pre-COVID, while it has...

Upgrade MMFS to HOLD (earlier REDUCE) on higher EPS expansion Our channel checks indicate that commercial vehicle (CV) finance business is expected to accelerate on the back of healthy demand conditions, anticipated improvement in supply chain and resilient balance sheets of financiers. They suggest (a) disbursements stand 80% of last year levels; ECLGS provides some boost (b) regulatory dispensations (restructuring/ ECLGS) mask true asset quality picture, but CV financiers' balance sheets remain resilient (c) new business asset quality intact, stress in seasoned...

Strong balance sheet and excess liquidity position are the key catalysts to derive growth. Additionally rising demand from rural sector, encouraging effort on cost optimization should support growth prospectus. However, we skeptical on the stock on uncertainty evolving around economy. Therefore, we downgrade our rating to HOLD on the...

Credit costs continued to remain elevated at | 619 crore (~76 bps of AUM), including Covid-19 provision of | 433 crore. This took outstanding Covid provision to | 910 crore (i.e ~111 bps of advances). Asset quality improved with GNPA ratio (with standstill asset norms) at 7.03% vs. 7.88% in Q2FY20 and 8.44% in Q1FY21. Excluding standstill asset classification, GNPA ratio came in at 7.53%, down ~91 bps QoQ. Collection efficiency for September 2020 improved to ~82%, though it was still below pre-Covid level. The management remained focused on cost rationalisation announced...

Reported provisions continue to lag our conservative forecasts prompting us to tweak FY21 earnings estimates higher by 58%. Subsequently, our FY22-23 estimates stand slightly higher by 5-10%. While Q2FY21 NPA at 7.5% stood optically better, higher write-offs and couple of granular asset details continue to throw negative surprises, viz, (a)8% (Rs50bn) critical assets (b)17% of overall customer base not paying even a single installment, o/w 6% could be restructured (c)Rs60bn book potential restructured book; Rs40bn...

Mahindra Finance (MMFS)'s 2QFY21 PAT was up 21% YoY to INR3b (a 64% beat and v/s INR1.5b QoQ). While PPoP was largely in line with est., lower provisions of INR6.2b (v/s est. INR8b) led to the PAT beat. PPoP grew 26% YoY to INR10.3b as opex declined 24% YoY to INR3.9b. Decline in opex was largely driven by 46% YoY decline in other expenses. Value of Assets (VOA) financed stood at INR54b (down 45% YoY). In the Auto/UV and Tractor segments, VOA was down just 2223% YoY, and in other segments, it was down 6585% YoY. While we acknowledge the...

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.

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...

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...