Buy Mahindra and Mahindra Financial Services; target of Rs 345: Sharekhan

Sharekhan's research report on Mahindra and Mahindra Financial Services

Net interest income (NII) at Rs. 1,812 crore (marginally above estimates) grew by 13% y-o-y/ 7% q-o-q. NIMs (cal.) improved by 14 bps q-o-q to 7.3%. Core fee income grew robustly by 64% y-o-y/ 76% q-o-q. Total operating expenses increased by 2% y-o-y /6% q-o-q. Opex to Avg. loans remained stable at 3.2% q-o-q. Operating profit grew by 24% y-o-y/ 10% q-o-q led strong revenue growth and contained opex growth. Provisions were higher than estimates at Rs. 342 crore.

Outlook

We maintain buy with an unchanged PT of Rs. 345. The company is focusing on improving the product mix (increasing the share of used CV) resulting in yield improvement, increasing fee income, along with lower credit cost to support earnings however growth moderation, higher cost of funds may pose risk to earnings in FY25E. At the CMP, M&M Finance trades at 1.6x/ 1.4x its FY2025E and FY2026E ABV, respectively.