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Prabhudas Lilladher recommended reduce rating on Mahindra and Mahindra Financial Services with a target price of Rs 124 in its research report dated October 27, 2020.
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.
Outlook
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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