Buy Mahindra and Mahindra Financial Services; target of Rs 275: Sharekhan

Sharekhan's research report on Mahindra and Mahindra Financial Services

Mahindra & Mahindra Financial Services Ltd.’s (MMFSL’s) credit costs is expected to moderate (from 3.9% in Q1FY23 to ~2%) in H2FY23 driven by a fall in repossession losses and write-offs. We believe the pandemic-led stress has mostly been factored into credit costs through accelerated write-offs. Effect of change in NPA recognition norms may be lower as reflected in sharp reduction in stage-2 loans (from 19.4% peak to 11.7% currently) and sustained ECL buffers (6.8%). Business momentum continues to remain robust as reflected in strong disbursements (up 104% y-o-y YTD). Branch expansion, incremental volumes from new product offerings (SME, LAP and Digital) and market share gains in auto/ UV segment would help to sustain healthy momentum.

Outlook

We expect MMFSL to deliver RoA/ RoE of 2.3%/ 12.7% by FY24E recovering from 1.3%/ 6.5% in FY22. At the CMP, the stock trades at 1.9x and 1.7x its FY2023E/FY2024E ABV. We reiterate a Buy on the stock with a revised PT of Rs. 275.

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