Hold Mahindra and Mahindra Financial Services; target of Rs 140: ICICI Direct

ICICI Direct's research report on Mahindra and Mahindra Financial Services

Mahindra & Mahindra Financial Services (MMFS) reported a healthy set of Q2FY21 numbers wherein steady AUM led to a reasonable topline. However, outlook on asset quality looks difficult with uncertainty on substantial proportion of AUM. Advances growth was broadly flattish at ~0.9% YoY to Rs 64389 crore, led by decline in growth for commercial (down ~70% YoY) and pre-owned vehicles (down ~61% YoY). Disbursements declined 45% YoY, though sequential witnessed revival of 55% to Rs 5400 crore. Maintaining excess liquidity was partially offset by a reduction of interest rates, which led gross spreads to decline ~20 bps YoY to 7.4% (7.3% in Q1FY21).

Outlook

Therefore, we maintain our HOLD rating on the stock with a revised target price of Rs 140/share (earlier Rs 160), valuing core auto business at ~1.1x FY22E ABV and ~Rs 12 as value for subsidiaries (post assuming 20% holding company discount).