Hold Mahindra Finance; target of Rs 270: Emkay Global Financial

Emkay Global Financial's research report on Mahindra Finance

Mahindra Finance (MMFS) reported Q4FY23 PAT of ~Rs6.84bn (+8.8% QoQ/+13.9% YoY), a ~51% beat on consensus estimates primarily driven by significantly-lower provisions at Rs3.8mn vs. Rs1,551mn in Q3FY23. Operating profit declined by ~5.4% QoQ on account of margin compression and higher operating expenses. FY23 PAT stood at Rs19.84bn, doubling over FY22. Disbursements were marginally weaker sequentially, off the high base in Q3 (festive season) at Rs137.78mn (-4.8% QoQ/+49.7% YoY). Sequential weakness was witnessed in auto and tractor disbursements. Business assets, however, displayed healthy growth at 7.5% QoQ/27.4% YoY to ~Rs827.7bn, on account of lower repayments. Disbursements in FY23 were the highest ever, at ~Rs495.4bn (+79.6% YoY). Calc. margins were slightly compressed, by 8bps in Q4, owing to rising cost of funds and increased focus of MMFS on the lower-yielding affluent segment. Calc. CoF rose by 13bps QoQ. Operating expenses were sequentially higher by 19.5% QoQ, as MMFS continues to invest in technology. Opex-to-AUM stood at 3.9% (Q3: 3.5%).

Outlook

We assume coverage on the stock with a HOLD rating and a Mar-24E TP of Rs270/share, using the excess return on equity (ERE) method for Mar-25E P/BVPS of 1.7x, for FY25E RoA of ~2.3% and RoE of ~15.6%.