Mahindra & Mahindra Financial Services Ltd. share price target

MMFS reported a 3QFY22 PAT of INR8.95b (64% beat), driven by net provision write-backs of INR1.5b (v/s our credit cost estimate of INR2.8b). Operating profit rose 5% QoQ/6% YoY to INR10.6b (in-line) due to lower interest expenses driven by a sharp decline in the cost of borrowings. This was slightly negated by an increase in OPEX (INR5.3b, up 8% QoQ and 26% YoY) due to higher activity levels and collection costs in 3QFY22. Business assets stood flat QoQ, but fell 4% YoY, to INR636.4b. Disbursements rose 24% QoQ and 28% YoY to INR80.3b...

Operating profit rose 36% QoQ to INR10.2b (10% beat) due to higher interest income from the write-back of NPA upgrades. This impact on PPOP was slightly negated by an increase in OPEX (INR4.9b, up 17% QoQ and 24% YoY) due to higher activity levels and collection costs in 2QFY22. Business assets stood flat QoQ, but fell 6% YoY, to INR636b. Disbursements rose 67% QoQ and 61% YoY to INR64.8b Given its long lineage and strong parentage, MMFS is well-equipped to deal with the stressed pool of loans and achieve upgrades via collections...

Mahindra & Mahindra Financial Services (MMFS) reported a mixed set of Q4FY21 numbers wherein topline growth improved on account of better margins but lower disbursements led to slower AUM growth. NII increased 12.2% YoY, 9.2% QoQ to | 1511 crore on the back of improvement in NIMs (calculated) that were up 63 bps QoQ, 35 bps YoY to 7.4% owing to slightly better asset quality and liquidity management. Employee cost increased 32% YoY to | 282 crore, mainly on account of lower base effect due to reversal of provisions on incentives YoY. Credit cost...

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...