Buy Mahindra and Mahindra Financial; target of Rs 350: Motilal Oswal

Motilal Oswal's research report on Mahindra & Mahindra Financial

Mahindra & Mahindra Financial’s (MMFS) 1QFY25 PAT grew ~45% YoY to ~INR5.1b (in line). NII stood at INR17.8b (5% miss), up ~13% YoY. Other income rose ~63% YoY to ~INR1.5b, driven by healthy fee income. NIM (calc.) declined ~45bp QoQ to ~6.6%. Credit costs stood at ~INR4.5b, translating into annualized credit costs of ~1.7% (vs. ~2.5% in 1QFY24).  Business momentum in 1Q was muted due to heatwaves in the north region, general elections in May’24, and floods in the northeastern region in Jun’24. The management exuded confidence that the disbursement momentum will improve going ahead. We estimate a ~16% CAGR in AUM over FY24-FY26.

Outlook

This will translate into a reduction in ECL provisions and corresponding credit costs. We estimate a ~40% PAT CAGR over FY24-FY26, with FY26E RoA/RoE of 2.4%/15.5%. Retain BUY with a TP of INR350 (based on 1.8x FY26E BVPS).