Buy M&M Financial; target of Rs 860: PLilladher

Prabhudas Lilladher is bullish on M&M Financial and has recommended buy rating on the stock with a target of Rs 860 in its April 24, 2012 research report.

“MMFS delivered a significant surprise in 4QFY12 with a PAT of Rs2.27bn (up ~45% YoY), a ~30% beat over our/consensus estimates. 4QFY12 was better on all counts with stronger than expected recovery leading to lower provisions and higher NII. With management confident on growth and consensus estimates already factoring in a credit costs normalisation in FY13, we maintain our positive view on MMFS with a Buy rating and PT of Rs860/share.”

“MMFS delivered ~36% YoY growth in AUMs with significant traction in CV/CE and used cars. Management asserted that Mahindra’s contraction in tractor sales is due to slowdown in Mahindra’s stronghold states, expected to recover in 1QFY13 and is not indicative of a broad based rural slowdown. Rural vehicle sales volumes continue to remain robust across categories aiding growth. With limited tractor contribution (~20% loans) and pick-up expected post 1QFY13, we expect ~27% AUM growth in FY13. Strong recoveries (Rs2bn) and revision in rates (~50bps in Jan-12) led to a surprise in NIM performance with NII ~7% higher than expected. We believe MMFS will be a beneficiary of a moderating rate cycle due to its large fixed rate asset book. Also, risks for PSL dependency is limited as MMFS has not raised any PSL funding from May-11.”

“In spite of low slippages seen in 9M12, recoveries were extremely strong with Gross NPAs coming off by Rs2bn QoQ. Poor rainfall could be a spoiler but management believes that all structural asset quality drivers remain in play and seemed extremely comfortable with asset quality. We already factor in a normalisation in credit costs from ~1.1% to 1.9% in FY13 and any positive surprise on monsoons would provide further upsides,” says Prabhudas Lilladher research report.

FIIs holding more than 30% in Indian cos

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