Prabhudas Lilladher's research report on Mahindra and Mahindra Financial Services
Reported provisions continue to lag our conservative forecasts prompting us to tweak FY21 earnings estimates higher by 58%. Subsequently, our FY22-23 estimates stand slightly higher by 5-10%. While Q2FY21 NPA at 7.5% stood optically better, higher write-offs and couple of granular asset details continue to throw negative surprises, viz, (a)8% (Rs50bn) critical assets (b)17% of overall customer base not paying even a single installment, o/w 6% could be restructured (c)Rs60bn book potential restructured book; Rs40bn benefiting asset classification could potentially slip or fall into above restructured category, part payments though in place. Q2FY21 also disappointed on sharp 45%YoY decline in tractor financing disbursements despite perceivably improving rural dynamics. This coupled with critical product segments the recovery of which stands prolonged, we maintain conservative loan growth forecast of 5%YoY for FY21 Our GNPA & credit costs estimates (9.3% and 2.4%+) stand maintained for FY21.
With structurally low return profile (11%RoE,1.6%RoA over FY22-23) offering no respite, we reiterate REDUCE rating with SoTP target of Rs 124 valuing core business at Rs 1.0x PABV at Sep’22 estimates.
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