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

Emkay Global Financial's research report on Mahindra Finance

MMFS reported a satisfactory set of numbers in Q1FY25, with PAT at Rs5.1bn coming below our estimate of Rs5.4bn and marginally above consensus estimate of ~Rs5bn. The recent focus on acquiring prime customers has caused pressure on yields, but the ECL method parameter (LGD/PD) changes led to credit cost for the quarter coming lower by Rs1.1bn and, hence, driving up profit. The management maintained its aspiration of 2.2% RoA for FY25, with 20% asset growth—which we see as a daunting task, given that improving each input factor driving the RoA is not only difficult but also contingent on many externalities. Given the relatively inferior RoA of ~2%, we see the valuation of MMFS shares being capped.

Outlook

We reiterate our REDUCE rating on the stock, with our unchanged Jun-25E TP of Rs270/share (implying FY26E P/B of 1.5x).