M&M Financial Services has target of Rs 1100: PN Vijay

Mahindra & Mahindra Financial Services has target of Rs 1100, says PN Vijay, Portfolio Manager.

Vijay told CNBC-TV18, "Mahindra & Mahindra Financial Services is a much known non-banking financial companies (NBFC). It is part of Anand Mahindra group. It is essentially in the automobile sector. In its disbursements, about 32 percent is accounted by cars, another 28 percent by utility vehicles and about 20 percent by tractors."
He further added, "The company has been growing phenomenally. If you see its cost of funding, about 48 percent of its funding is from banks and about 26 percent from the bond market; rest is through securitisation of its loan assets and short-term commercial paper."
"In the quarter that ended, it had an excellent quarter. The net interest margins went up by almost 200 bps to 10 percent, which is very high NIM for any finance company. The net interest income (NII) went up about 47 percent. There was slight slippage, which is seasonal. Asset quality is not a problem for M&M Finance."
"The trigger came for a stock recently when it sold about 12 percent odd of its stake in its 100 percent subsidiary Mahindra Insurance Brokers for about Rs 65 crore to Leapfrog, a private equity investor, at an astounding price earnings valuation of 38. That immediately led to an upward revision in the valuation of this subsidiary company."
"Going forward, I expect M&M Finance to do even better because generally the cost of capital for NBFCs is coming down as interest rates gradually come down in the market. It is trading around Rs 883 or so, which is about 11 times forward earnings. I would give this one of the better managed NBFC companies in India a price target of about Rs 1,100 in the next 12 months." Disclosure: I have no personal holding in the above stock.