Hold M&M Financial; target Rs 1080: Emkay
Emkay Global Financial Services has recommended hold rating on Mahindra & Mahindra Financial Services (MMFS) with a target price of Rs 1,080, in its January 18, 2013 research report.
January 21, 2013 / 12:52 IST
Emkay Global Financial Services has recommended hold rating on Mahindra & Mahindra Financial Services (MMFS) with a target price of Rs 1,080, in its January 18, 2013 research report.
"MMFS Q3FY13 NII/PAT at Rs5.6/2.0bn inline with estimates. GNPA though much lower than historical levels, continue to increase at faster pace, +14%qoq (higher than seasonal pace). NIM’s contracted by 16bps qoq to 9.1% as MMFS chose to slow down on high yielding risky segments like CV’s. However reversal in interest rate cycle to aid margin improvement. AUM’s grew 32%yoy led by healthy growth across categories. Value of assets financed also grew by healthy 22% qoq and 15% yoy. At 2.6/2.2x FY14E/15E ABV, stock fairly prices in 27% CAGR in earnings over FY12-15. PCR at 62% (lowest in many quarters) is key risk.MMFS Q3FY13 results with NII at Rs5.6bn and PAT at Rs2.0bn, though came inline with our estimates, it was lower than the consensus. NII grew by 32.7%yoy to Rs5.6bn led by 32%yoy growth in AUM’s to Rs256bn, albeit NIM’s contracted by 16bps qoq to 9.1%. The AUM was led by Auto/UV, Tractors and Refinance vehicle segments which grew by 32%, 18% and 39% respectively. On the borrowing front, mix continues to remain skewed towards banks loans at 45%, with securitization and commercial paper borrowing coming down by 15%qoq and 22%qoq respectively.MMFS NIM’s contracted by 7bps to 9.1% as the company consciously went slow on high yielding risky segments like CV’s. However repayment of short term borrowing through QIP money provided some cushion to the margins. Moreover likely reversal in interest rate cycle to aid margin improvement.While the AUM across vehicle categories witness 25-40%yoy growth, disbursement in Commercial vehicle declined by 18%yoy, while in car segment it was flat on yoy basis. While lower disbursement in CV segment was on account of management conscious strategy to go slow on risky segments in the current environment, low disbursement in car segment was led by lower financing of Maruti vehicles as the ramp up in latter’s Manesar plant post the strike in Sep-12, took time. However the management is confident of pick up in car disbursement going forward as production in Maruti’s plant has resumed to normalcy.While the company continued to grow at a healthy pace aided by healthy growth across vehicle category, deterioration in asset quality over the last three quarters has been a cause of worry. Though we are building in 27% CAGR in earrings over FY12-15E driven by 25% CAGR in AUMs, the current valuations at 2.6x/2.2x standalone FY14E/FY15E ABV look fair. We maintain our HOLD rating with revised consolidated TP of Rs 1,080 (2x FY15E ABV)," says Emkay Global Financial Services research report.Promoters who have pledged maximum shares in their company 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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