Hold M&M Financial; target of Rs 935: Emkay

Emkay Global Financial Services has recommended hold rating on M&M Financial with a target of Rs 935, in its October 22, 2012 research report.

“MMFS Q2FY13 NII came in at Rs5.3bn (35%yoy) inline with expectation, however with higher than expected provisioning, net profit was just a tad lower at Rs1.9bn as against estimates of Rs2.0bn. The NII growth was aided by healthy 34% yoy (9%qoq) growth in AUM to Rs238bn and 10bps yoy expansion in reported gross spreads. Strong growth in higher yielding CV’s/ Used vehicles would have helped in improving spreads. Healthy growth in AUM’s was led by continued traction in Cars, CV’s and refinance vehicles which grew by 38%yoy, 58.7%yoy and 56.6%yoy respectively. On the borrowing front, while mix continues to remain skewed towards banks loans at 45%, 80% of the incremental funding during the quarter was through bonds and commercial paper.”

“While the company continued to grow at a healthy pace aided by healthy growth across vehicle category, deterioration in asset quality over the last two quarters has been a cause of worry. Though we are building in 32% CAGR in earrings over FY12-14E driven by 26% CAGR in AUMs, the current valuations at 2.3x/1.9x standalone FY13E/FY14E ABV look fair. Adjusted for MIBL stake sale, the valuations would stand at 2.2x/1.8x FY13E/14E valuations. We maintain our HOLD rating with revised TP of Rs935 (2x FY14E ABV) driven by higher QIP led upgrade in ABV,” says Emkay Global Financial Services research report.   

Institutional holding more than 40% in Indian cos      

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