Buy Mahindra & Mahindra Financial Services; target of Rs 340: Sharekhan

Sharekhan's research report on Mahindra & Mahindra Financial Services

PAT stood at Rs. 899 was higher, mainly led by negligible credit costs that fell owing to a reversal of ECL provisions of Rs. 430 crore due to lower LGDs. Consequently, stage-3 coverage reduced to 50% versus 59.5% q-o-q. Asset quality has shown slight deterioration. With cautious outlook on asset quality given a tough macro environment and PCR guided at 51-54%, credit cost could be slightly higher than guided at ~1.3-1.5% on average assets in FY26E. On the positive side, the company reported improved disbursement momentum y-o-y led by PVs, tractors offsetting slow down in CVs and guided for mid-to-high teens loan growth going ahead. NIMs showed an uptick q-o-q and outlook on NIMs remains positive given a lower interest rate environment.

Outlook

At CMP, the stock trades at 1.9x/ 1.7x /1.5x its FY2025E/FY2026E/FY2027E BV, respectively. We maintain buy with upward revised PT of Rs. 340. Risk-reward appears favorable given recent underperformance and AUM growth is likely to be at 17% CAGR over the next 2 years along with RoE at ~15%.