Shares of Mahindra & Mahindra Financial Services reeled under selling pressure on October 4, dropping as much as 7 percent after the company's asset quality as well as growth faltered in the July-September period.
At 10.02 am, shares of Mahindra & Mahindra Financial Services were trading at Rs 313.35 on the NSE. Furthermore, the selloff in the stock today was also triggered by heavy trading volumes as 40 lakh shares already changed hands so far, higher than the one month daily traded average of 37 lakh shares.
Disbursements for the non-bank finance lender fell 1 percent on year to Rs 13,160 crore. With this, the NBFC's disbursement growth stood at only 2 percent on year for the first half of FY25.
In the last quarter, management had provided soft guidance of low teen on year disbursement
growth in FY25, which according to Nomura, now seems very challenging to achieve. "Even to
achieve 11 percent on year disbursement growth in FY25, M&M Financial will have to achieve close to 19 percent growth in 2HFY25," the brokerage wrote in a note.
Morgan Stanley also waived similar concerns and stated that there could be risks to expectations of assumed higher growth for M&M Financial in H2FY25 if disbursements don't pick up. On that account, Morgan Stanley also expects the stock to remain under pressure in the near-term.
Meanwhile, the NBFC firm's asset quality also took a hit as gross non-performing assets ratio rose to 3.8 percent in Q2, up from 3.56 percent a quarter ago.
Factoring these in, even Nomura has a cautious stance on M&M Financial, adding that the company's valuation appears expensive given its growth and profitability profile.
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In addition, the firm feels a higher share of AUM, with 40 percent in highly competitive segments like passenger vehicles, may negatively impact yields.
"Profitability has been underwhelming on a structural basis, with 5- and 10-year RoEs (Return on Equity) at 8 percent and 10 percent, respectively—the lowest among peers. Even in FY24, the average RoE stood at just 10 percent, " the brokerage stated.
Moreover, Nomura also anticipates Q2 to remain a challenging quarter for M&M Financial due to both growth and asset quality concerns, with expectations of single-digit to low double-digit RoE.
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