Accumulate M&M Financial; target Rs 1200: P Lilladher
Prabhudas Lilladher is bullish on Mahindra & Mahindra Financial Services (M&M Financial) and has recommended accumulate rating on the stock with a target price of Rs 1200 in its January 18, 2013 research report.
January 21, 2013 / 15:00 IST
Prabhudas Lilladher is bullish on Mahindra & Mahindra Financial Services (M&M Financial) and has recommended accumulate rating on the stock with a target price of Rs 1200 in its January 18, 2013 research report.
"Mahindra Finance reported a strong 3Q12 with stable NIMs and better than expected growth. Credit costs is normalizing from low FY12 levels but expected uptick in margins (large fixed rate book) and opex improvement will net off impact of credit cost normalization. In spite of ~40bps higher credit costs assumed in FY14 and the recent equity issue, we expect MMFS to report ROEs of ~21‐22%. MMFS remains our preferred long term NBFC play but valuations at 2.5x FY14 book have got demanding post the recent rally and hence near term upsides seems capped.In spite of weakness in OEM volumes, Mahindra Finance has been able to report strong AUM growth of ~8% q/q, 34% y/y driven by increasing penetration in non-Mahindra OEMs and strong sales for Mahindra UVs. Disbursement trends have moderated in CVs post build up in FY12 but UVs and used vehicles disbursement growth continues to remain strong. We factor in ~25% AUM growth in FY14 and believe there could be a positive surprise as rural spending generally remains high in pre-election yrs.Margins remained stable in Q3FY13 and with wholesale rates easing + a large fixed rate book, we expect NIMs to improve as monetary easing begins. On securitization, management is not experiencing any change in funding rates after the change in regulations regarding assignments. Also, Opex/assets has come off by ~40bps y/y in 9M13 and with calibrated branch expansion (10% y/y) we believe there will be further improvement in opex/assets in FY14.Gross NPAs have inched up q/q but management has not seen any material change in collections expect for some delays in the CV book. Credit costs have inched up by 60% y/y but mean reversion was expected from low levels seen in FY12 (140bps in 9M13 v/s 110bps in 9M12). We factor in credit costs to inch upto ~180-190bps by FY14/15 but still expect ROEs to remain ~21-22% as higher NIMs + opex improvement will net off impact from a possible credit cost normalization. Accumulate the stock for the target of Rs 1200," says Prabhudas Lilladher research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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