Buy Mahindra Finance; target of Rs 360: Emkay Global Financial

Emkay Global Financial's research report on Mahindra Finance

Driven by the surge in credit cost (Q2: Rs7.0bn vs our estimate of Rs5.0bn and Q1: Rs4.5bn), MMFS reported weaker profitability in Q2FY25, with PAT at Rs3.7bn logging significantly below our estimate of Rs5.0bn. The rise in credit cost reflects the inherent seasonality in MMFS’s business owing to the agrarian and rural self-employed customer segment. Notwithstanding the credit-cost surge in Q2, management appears confident about asset quality and credit-cost normalization in H2 led by recoveries and ECL Model refresh-driven reversal of provisions. Overall, we continue to believe that the strategic path chosen by MMFS is the right one, but execution will be crucial and performance improvement gradual (Read our earlier note: Upgrade to BUY).

Outlook

In addition to the gradual RoA expansion to 2.2%, the beginning of the rate-cut cycle, the rebound in tractor sales, the seasonal improvement in asset quality, the absence of MFI and unsecured PL exposure, and the palatable valuation in the near term make MMFS attractive; reiterate BUY with Sep-25E TP of Rs360.

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