Buy Mahindra and Mahindra Financial Services; target of Rs 350: Axis Capital

Axis Capital's research report on Mahindra and Mahindra Financial Services

AUM growth was steady at 23% YoY/ 4% QoQ aided by pre-owned segment (33% YoY). Other segments of PV (29% YoY) and CV (23% YoY) also grew well. 3W also picked pace at 23% YoY/ 4% QoQ. Tractors remained soft (-4% YoY). While overall disbursements were soft at 5% YoY due to seasonality and impact of the general elections, CV (11% YoY) and SME (68% YoY) grew well. The management highlighted that it is seeing good growth in LCV/ HCV and bus segment. While incremental growth in the pre-owned segment is currently slow (2% YoY), the management expects some uptick. Share of new business is currently low at 6% but should inch up. The management expects FY25 book to grow by 15-20%, with some shift in mix and focus on high-ticket vehicle loans, which is largely in line with our estimates.

Outlook

Q1FY25 was seasonally weak with PAT at Rs 5.13 bn (+46% YoY/ -17% QoQ) around 5% below the estimate. NII/ PPOP grew 12.6% / 13.5% YoY aided by healthy AUM growth (23% YoY). Disbursements up 5% YoY were soft due to the general elections, but should pick up in the ensuing quarters. NIM at 6.6% (down 50 bps QoQ) was impacted by lower yields. The management expects the impact to be somewhat offset by repricing, cap on prime customers and insurance fee. We expect H2FY25 to be better and factor in ~18% AUM growth, which is largely in line with the management guidance. We broadly retain the estimates and maintain BUY with a TP of Rs 350 (2.2x FY26E P/ABV).