Buy Mahindra and Mahindra Financial; target of Rs 370 : Motilal Oswal

Motilal Oswal's research report on Mahindra and Mahindra Financial

Mahindra & Mahindra Financial (MMFS)’s 1QFY24 PAT grew 58% YoY to INR3.5b (23% miss). Net Total Income (reported NII) stood at INR16.7b (6% miss) and rose 7% YoY while PPoP at ~INR10b (5% miss) grew 6% YoY.  Annualized credit costs of ~2.5% (PY: 3.9%) were higher than expectations and included ~INR3.3b in write-offs and ~INR2.0b in provisions. In 1QFY24, the yields (calc.) moderated ~45bp QoQ while CoF (calc.) rose ~20bp, leading to a margin contraction of ~50bp QoQ. This yield moderation, in our view, was primarily due to the rising proportion of PrimeX customers and stronger growth in Cars/Utility Vehicles. Management guided for a product-mix change and gradual re-pricing in incremental disbursements that should lead to a gradual expansion in yields. We estimate NIM to moderate to 7.7% in FY24 (PY: 8.3%) and then expand ~20bp YoY to 7.8% in FY25.

Outlook

MMFS currently trades at 1.9x FY25E P/BV. Risk-Reward is favorable for a PAT CAGR of ~20% over FY23-FY25E and FY25E RoA/RoE of 2.3%/15.4%. Maintain BUY with a revised TP of INR370 (based on 2.3x FY25E BVPS).