Buy M&M Financial; target of Rs 800: Emkay

Emkay Global Financial Services is bullish on M&M Financial and has recommended buy rating on the stock with a target of Rs 800 in its April 23, 2012 research report.

“MMFS reported strong set of Q4FY12 results with NII at Rs5.1bn (+28% yoy) and net profit at Rs2.3bn (+45% yoy). The NII growth was aided by healthy 36% yoy (6% qoq) growth in AuM to Rs206bn and ~140bps sequential improvement in calculated NIM to 11.1%. NII included a) Rs180mn towards NPL recovery and b) Rs260mn of reversal of provisions on assignments. If we excluded these income items, NII at Rs4.6bn was broadly inline with our estimates of Rs4.5bn. The company has added 60 branches in FY12 (taking its total strength to 607) and plans to add another 60 branches for FY13.”

“Increasing penetration with strong brand name and parentage has enabled MMFS gain traction in the segments of its operations. AuM growth at 36% yoy (6% qoq) was marginally below our estimates of 40% yoy /8% qoq. Excluding tractors (+18.4% yoy) growth continues to remain buoyant in segments of Cars (+36% yoy) / Utility vehicles (+32% yoy) CV (+82% yoy) and refinance (+59% yoy). MMFS has emerged as 3rd largest financer for Maruti in rural India and enjoys 26% market share of Maruti rural sales. On the borrowing front, mix continues to remain skewed towards Banks (including assignments) at 55% followed by bonds (22%).”

“MRHFL (Mahindra Rural Housing Finance Ltd) loan portfolio at Rs5.4bn was up 70% yoy. During FY12, the company disbursed loans to the tune of Rs2.6bn (up 31% yoy) and currently operates in 8 states. After providing for NHB regulated provisioning, PAT at Rs119mn was up 34% yoy. MIBL (Mahindra Insurance Brokers Ltd) reported 43% yoy growth in net premium to Rs4.1bn. However, given tough operating environment (lower insurance commissions), PAT at Rs135mn was down 38% yoy. Consolidated net profit at Rs6.4bn was 31% yoy.”

“The diversification strategy of MMFSL clearly seems working in its favor. Diversity of products, vendors and geographies has helped it to clock strong growth in AUMs alongwith keeping the npls low. It is also reflected in the fact that since agri led usage of assets financed by it is down to 11%, it has been able to shrug off the slow down in agri sector. We believe that continued diversification of products and vendors will help MMFS to report cagr of 31% CAGR in loan portfolio and 25% CAGR in earnings. RoE / RoA are set to remain high at ~24% and 3.5% respectively. Current valuations at 2.4x/2.0X standalone FY12E/FY13E ABV still remains attractive. Maintain BUY with TP of Rs800,” says Emkay Global Financial Services research report.    

Non-Institutions holding more than 90% in Indian cos 

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