M&M Finance rallies 6% in early trade after robust Q4 result

Mahindra Finance

Mahindra and Mahindra Financial Services Ltd (MMFS) was trading more than 6 percent higher at Rs 270.90 on NSE in the morning trade on May 2 after the company reported a robust rise in net profit in the March quarter of the financial year 2022-23.

Mahindra Finance's standalone net profit for the quarter rose 14 percent year-on-year (YoY) to Rs 684 crore. Net interest income was at Rs 1,723 crore, 13 percent higher from the year-ago period. Total income rose 24 percent YoY to Rs 3,057 crore.

Disbursement for the quarter came in at Rs 13,778 crore and was up 50 percent YoY. Consequently, the loan book increased 27 percent to Rs 82,770 crore.

At 9.57 am, the share was trading at Rs 275 on the National Stock Exchange, up 6.2 percent from the previous close.

JP Morgan has a neutral rating on the stock, with a target price of Rs 230 a share. Q4 was 8 percent ahead of JP Morgan estimates, driven by zero provisions. Pre-operating profit (PPoP) was lower 5 percent QoQ, given the higher opex.

NIM decline was controlled. Credit costs were low and there was a reserve drawdown through the year, the brokerage said. Asset under management (AUM) growth was aided by full-year disbursement growth. Asset growth did not translate into operating profit with full year PPoP. Operating expense on franchise build-out remained elevated, it added.

Morgan Stanley is “overweight” on M&M Finance with a target price of Rs 310. The company has been delivering strong asset quality and loan growth. The stock is up 50 percent in the last year. The P/B has re-rated above five-year mean. The RoE is expected to improve to 13 percent in FY24 and 15 percent in FY25, respectively, it said.

Jefferies has a “hold” rating on the stock with a target price of Rs 270. The Q4 profit after tax (PAT) was 6 percent lower than estimates due to higher opex. Net interest income (NII) grew 10 percent YoY and was in line with expectations, it said.

Asset quality improved QoQ, whereas provisions fell and were a tad below expectations. The company gained from strategic initiatives, cyclical and seasonal tailwinds in rural markets.

The rural macros broadly stay positive but there is some risk around monsoon. Still, in the given circumstances the risk reward appears balanced, it said.

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