Reduce Mahindra and Mahindra Financial Services; target of Rs 179: Prabhudas Lilladher
Prabhudas Lilladher recommended Reduce rating on Mahindra and Mahindra Financial Services with a target price of Rs 179 in its research report dated July 20, 2020.
July 21, 2020 / 01:52 PM IST
Prabhudas Lilladher's research report on Mahindra and Mahindra Financial Services
Seasonally weak Q1FY21 quarter saw severe asset quality deterioration (~100bpsYoY/75bpsQoQ spike), elevated provisioning (up 36%YoY/25%QoQ) and upcoming deep discounted rights issue (76% discount, 33% BV dilution). Said that, PAT was cushioned by partial stake sale gains from AMC business (Rs 61mn), operating leverage (38%YoY/18%QoQ decline) driven by one-offs and marginally better than expected NII (up 9%YoY/2%QoQ) buoyed partially by pent-up demand. While Mngt cites confidence in tractor, pre-owned and small vehicles financing, certain critical products (9% aggregator portfolio of overall car segment), critical rural housing business (16% NPA) and customer segments (59% under moratorium) should further weigh down on asset quality and earnings over FY21-22. Consequently, GNPA & credit costs estimates stand tweaked to 9.3% for FY21 (earlier 7%). While our estimates (EPS up by 6% for FY21 and 1-2% FY22-23E) sufficiently incorporate rural-led tractor and pre-owned recovery translating into better NII and anticipated higher other income, the same should stand offset by continued elevated provisioning (CC at 530bps FY21, 300bps FY22).
Moreover, capital raising coming at a huge dilution is translating into low order RoEs (7-10%: FY22-23E) at current expensive valuations (2xPABV FY23E). With structurally low return profile offering no respite, we reiterate REDUCE rating with SoTP target of Rs 179 (earlier Rs191) valuing core business at Rs 1.5x PABV as we rollover to Sep’22 estimates.
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