Buy Mahindra and Mahindra Financial; target of Rs 260: Motilal Oswal

Motilal Oswal's research report on Mahindra and Mahindra Financial

Mahindra & Mahindra Financial (MMFS) reported a 2QFY23 Core PAT of INR5b (5% beat), which declined 51% YoY. Reported PAT (including extraordinary loss of INR5.5b) declined 56% YoY, but grew ~101% QoQ to ~INR4.5b in 2QFY23. This was led by a ~70bp QoQ compression in NIM and elevated opex with CIR at ~44% (PQ: 40%). Net total income (reported NII) grew 2% YoY to INR15.4b (6% miss). Operating profit fell 15% YoY to INR8.6b (13% miss). Credit costs plunged ~70% QoQ to ~INR2b (annualized 1.1%) during the quarter. In the context of the RBI ban on deploying third-party agencies for repossession activities, the management has been engaging with the RBI and sounded reasonably confident that the ban could get revoked by 4QFY23. Further, MMFS employs third-party agencies only for repossessions and a ban would not impact collections. Besides, onboarding ~6K off-roll employees (who were predominantly in collections) on its own payroll will mitigate some of the negative impacts from this ban.

Outlook

We model an AUM/PAT CAGR of 24%/39% over FY22-FY24E for an FY24 RoA/RoE of 1.9%/11.4%, respectively. Maintain BUY with a TP of INR260 (based on 1.8x FY24E BVPS).