Mahindra & Mahindra Financial Services Ltd. share price target

Operating Income fell by 6.51% to Rs. 1925.84 Cr in Q1FY19 when compared to the previous quarter. Mahindra & Mahindra Financial Services Ltd Q1FY19 results Comment

Asset quality surprised positively even though the company transitioned to 90 days past due (dpd) NPA recognition norm in Q4FY18 from 120 dpd in Q4FY17. Gross non-performing asset (NPA) ratio declined by 50 bps YoY (310 bps QoQ) to 8.5% on account of strong recovery and improvement in rural cash flows. However, Net NPA ratio increased by 20 bps YoY (180 bps QoQ) to 3.8%. Going forward, we expect positive rural sentiment and healthy farm cash flows to sustain led by normal monsoon. Thus, collections are expected to improve further. Hence, we...

Operating Income grew by 14.41% to Rs. 2497.01 Cr in Q4FY18 when compared to the previous quarter. Mahindra & Mahindra Financial Services Ltd Q4FY18 results Comment

Maintain BUY with a TP of Rs 590 (3.5x Mar-20 ABV of Rs 164 + Rs 18 for MIBL). An eye-catching recovery in asset quality (G/NNPAs down 310/180bps QoQ) and renewed growth traction (18% YoY) capped a remarkable quarter for MMFS. The downtrend in provisions (-56/21% YoY/QoQ) and uptick in NIMs (+15/134bps YoY/QoQ) led to a net earnings jump (+81% YoY).

We retain Sell on MMFS with TP revised upwards to Rs380 (valued at 2.5x FY20E ABV). Our channel checks had pointed for strong disbursement growth and incidences of lower repossessions / higher recoveries for the quarter. Q4'18 results corroborated our survey that saw a) solid 17.8% YoY growth in AuM and b) sharp 22% QoQ decline in GNPA. Commentaries on growth, asset quality remain encouraging. Even as we factor in higher growth rates (we have our reservations here) and improved asset quality, FY20E RoE will still be lower to its 10-year average RoE, also when compared to its peers. Valuations at 3.4x FY20E ABV are on the higher end of the band. Retain SELL....

MMFS reported PAT of INR4.2b (5% miss). While net income was in line and provisions were lower than estimated (23% lower), higher one-time gratuity provisions and employee incentive cost led to the PAT miss. Key positives: a) Calculated NIM on AUM expanded 140bp QoQ, led by yield expansion, as MMFS gained market share in used vehicles and non-M&M OEMs. b) Adj. AUM grew 19.5%/6.6% YoY/QoQ (ahead of our estimate), marking sturdy growth after 12 straight quarters of range-bound growth (8-12%).c) GNPA (on 90dpd) in absolute terms fell 22% QoQ to INR47.0b, and PCR improved 280bp QoQ to 58%. GNPA % declined 300bp QoQ to 8.5%.

Mahindra Finance (MMFS) has showcased healthy performance, much on expected lines, with AUM growth of ~17.8% yoy to Rs551bn whereas PAT grew by ~81.4% yoy to Rs4.24bn led by sharp decline in credit costs Interestingly, AUM mix for the company is inclining towards newer lending segments like used vehicle/SME loans/CVs instead of its traditional products like UVs/tractors...

Maintain BUY with a TP of Rs 531 (3.5x Dec-19 ABV of Rs 146 + Rs 18 for MIBL). MMFS relentless efforts on collection coupled with cautious approach on growth has led to a step up across parameters. Asset quality improved as G/NNPAs 90bps sequentially even as provisions halved (156bps vs 364bps QoQ).

MMFS reported PAT (adjusted for stake sale gain) of INR2.9b, exceeding our estimate by 17%, driven by net income beat of 6% (helped by lower cost of funds) and lower provisions (INR2b v/s estimate of INR2.2b). During the quarter, the company recorded one-off gains of INR650m (INR500m post tax) on sale of stake in one of the subsidiaries. PAT including stake sale wasINR3.42b. The gain was not factored in our estimates. AUM grew 13.5%/3.7% YoY/QoQ (in-line), registering sixth straight quarter of 13-14% AUM growth. With the base becoming favorable, we expect AUM growth of 16-17% in 4QFY18. Growth was driven primarily by tractors, CV and CE (+13% YoY), and SME (+1.3x YoY). On a sequential basis, CV/CE(+12%), Tractors (+10%) and Cars (+8%) were the key drivers.

We met the management of Mahindra & Mahindra Financial Services (MMFS) and came back encouraged by on-the-ground developments in its markets. Being one of the most widely levered NBFCs to the rural economy, MMFS is witnessing a clear turnaround in both growth and asset quality, with two successive normal monsoons (2016 & 2017) as well as the government's focus on rural spending. Over the past five years, MMFS has almost doubled its branch count- however, most branches are yet to reach full potential. As the company looks to sweat its branch potential with an improving business environment, we expect 15-18 % AUM CAGR over the medium term. In addition, credit costs are expected to decline 100bp over the medium term from 3 % witnessed in FY17.