Buy M&M Financial; target of Rs 830: Motilal Oswal

Motilal Oswal is bullish on M&M Financial and has recommended buy rating on the stock with a target of Rs 830 in its July 30, 2012 research report.

“Mahindra & Mahindra Financial Services (MMFS) posted 58% YoY growth in 1QFY13 PAT to INR1.6b. PAT was 19% higher than our estimate, driven by (1) strong AUM growth (+5% QoQ; 38% YoY), (2) better than expected margin performance, and (3) tight control over opex.”

“AUM grew by a healthy 38% YoY and 5% QoQ to INR217.4b. AUM mix shifted marginally in favor of cars, commercial vehicles and construction equipment, which constituted 82% of incremental loans; the share of utility vehicles declined 200bp QoQ. Net income grew 43% YoY to INR4.9b (9% higher than our estimate of INR4.5b), driven by 51% YoY (flat QoQ) increase in income from operations on account of (1) robust AUM growth of 5% YoY, and (2) 40bp YoY improvement in calculated NIM on AUM. GNPAs increased 38% QoQ in absolute terms, which is largely seasonal in nature. In percentage terms, GNPAs declined to 3.8% from 4.6% in 1QFY12. Provisioning expenses were INR854m (v/s our estimate of INR700m) due to sequential increase in NPAs and additional provision of INR125m-130m on the two-wheeler and personal loans portfolio due to internal change in asset classification norms. As on June 2012, the two-wheeler and personal loans portfolio stood at ~INR600m (0.3% of AUMs).”

“MMFS is well positioned to sustain its qualitative growth momentum on the back of its multiproduct strategy. This also augurs well for its asset quality. We are factoring in AUM and earnings CAGR of ~25% over FY12-14. The stock trades at 1.7x FY14E BV. Buy,” says Motilal Oswal research report.

Non-Institutions holding more than 90% in Indian cos

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