Buy Mahindra and Mahindra Financial Services; target of Rs 315: Sharekhan

Sharekhan's research report on Mahindra Financial Services

M&M Finance has been reporting strong asset-quality performance with GS3 and NS3 assets improving to 4.5%/1.9% vs. 5.9%/2.5% q-o-q, respectively. GS2 assets declined to 6.0% vs. 8.4% q-o-q. PCR on Stage-3 assets remained stable q-o-q at 59%. PAT beat was mainly due to the negligible credit cost reported for the quarter. On the operational front, numbers missed expectations due to NIM (calculated as a % of average loan assets) declining by 20bps q-o-q to 8% and higher opex growth with opex-to-average loan assets at ~3.9% vs. ~3.4% q-o-q. Loan assets grew by 27% y-o-y, aided by strong disbursement growth of 80% y-o-y in FY2023. Disbursement growth is expected to moderate going forward due to a higher base in the trailing 12 months; however, there are no demand concerns.

Outlook

Business momentum is progressing well on its guided vision 2025 and is expected to remain healthy, augmented by M&M’s new product, increasing share of pre-owned vehicles, and the company diversifying into the semi-urban, rural affluent, and MSME segments. At the CMP, the stock trades at 1.7x/ 1.4x its FY2024E/FY2025E BV estimates, respectively. We maintain our Buy view with a revised PT of Rs. 315.

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