Buy Mahindra and Mahindra Financial; target of Rs 330 : Motilal Oswal

Motilal Oswal's research report on Mahindra and Mahindra Financial

Mahindra & Mahindra Financial (MMFS)’s 2QFY24 PAT declined 48% YoY to INR2.35b (44% miss). Reported NII rose 9% YoY to INR16.7b (6% miss), while PPoP grew 9% YoY to ~INR9.4b (10% miss). Annualized credit costs of ~2.8% (vs. 2.5% in 2QFY23) were higher than expectations and included ~INR3.5b of write-offs (vs. ~INR3.1b in 1Q). In 2QFY24, yields (calc.) moderated ~35bp QoQ, while CoF (calc.) rose 10bp, leading to a NIM contraction of ~45bp QoQ. Yield moderation was attributed to a rising proportion of PrimeX customers, stronger growth in loweryielding Utility Vehicles and no interest rate hike on incremental lending. We cut our FY24E EPS by ~12% to factor in a higher NIM compression and elevated credit costs in 1HFY24. We model an 18%/21% CAGR in AUM/PAT over FY23-FY26E, with FY25E RoA/RoE of 2.2%/15%. Until two quarters ago, MMFS had managed to reduce volatility in its NIM and earnings performance by streamlining operations and enhancing risk management. MMFS has now reported two consecutive quarters of NIM volatility and elevated credit costs (despite minor improvements in asset quality). Such repeated volatility in NIM and credit costs could affect investor confidence in its transformation journey.

Outlook

We believe that MMFS should see improvements in NIM and a moderation in credit costs in 2HFY24. Retain BUY with a revised TP of INR330 (based on 2.0x Sep’25E BVPS).

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