Akash Jain
Mahindra & Mahindra Financial Services is one of India’s leading non-banking finance companies focused in the rural and semi urban sector is the largest Indian tractor financier. Primarily in the business of financing purchase of new and pre-owned auto and utility vehicles, tractors, cars, commercial vehicles, construction equipments and SME Financing.
At current market price of Rs 473 (Face value: Rs 2), the stock trades at a P/BV of 3.3x which we believe is cheap as compared to other listed NBFCs. In Q4FY18, the company witnessed strong 17.8 percent YoY growth in AuM and a sharp 22 percent QoQ decline in GNPA.
The company's Q4FY18 consolidated net profit rose 79.4 percent at Rs 513.1 crore against Rs 286 crore, in the same quarter last year. The company improved its Return on Assets significantly from 1 percent in FY17 to 1.9 percent in FY18. With improving rural cash flows, recovery from NPAs would help the company to improve its ROA of 2.6-2.8 percent by FY20.
The management is optimistic on improving rural cash flow which should lead to growth of 18-20 percent in FY19 across segments. Yields were comfortable and no pressure is seen by the Management in medium term. Management expects yield range to remain between 15-17 percent, however company hinted of some funding cost pressure and can be passed to selective geography and selective product segments on keeping spreads stable. NPAs in the rural housing is expected to reduce in coming quarters as Maharashtra has improved in cash flow and which will translate towards recoveries. PCR stood at 58.1 percent in FY18. We expect a target of Rs 544 by FY19 end (P/BV of 3.2x on estimated FY19E Book Value of Rs. 170) implying an upside of 17.5 percent.
Disclaimer: The author is Vice-President - Equity Research at Ajcon Global. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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