Prabhudas Lilladher recommended accumulate rating on Mahindra and Mahindra Financial Services with a target price of Rs 527 in its research report dated April 25, 2019.
Prabhudas Lilladher's research report on Mahindra and Mahindra Financial Services
Best in 5 years reported asset quality (Stage 3 GNPA decline 310 bps to 5.9%; provisions reduce 200%+ YoY) and industry best AUM growth at 26% YoY at Rs 613bn led to PAT beat at Rs 5.93bn (PLe: Rs 4.10bn) in a seasonally strong Q4. While disbursements at Rs 1172.6bn stood down 11.8% QoQ largely due to paring down on MSME (NBFC lending) book and market headwinds, Management expects healthy rural pick-up with post-election and monsoon scenario stabilizing by H2FY20. We envisage RoAs stabilizing at 2.4% and RoEs climbing to 17.5% over FY20-21E led by (a) strengthening market positioning across key products and sustained rural uptick that can put up 22% AUM growth (FY21E) (b) focus on higher yielding product mix and maintaining pricing power leading to 8.5% NIMs (c) improving asset quality with GNPAs declining to 5% and credit costs restricting to <2% by FY21E.
Improved EPS CAGR translates into slight uptick in target price to Rs 527 (earlier Rs 519) valuing MMFS at 2.7x FY21 ABV inclusive of subsidiaries' value of Rs 59, however, we reiterate ACCUMULATE rating as the stock remains susceptible to cyclical and event based headwinds on the rural side.
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