Reduce Mahindra Finance; target of Rs 280: Emkay Global Financial

Emkay Global Financial' research report on Mahindra Finance

MMFS reported a steady quarter, with PAT at ~Rs5.7bn (+8% QoQ/+54% YoY), ahead of Street and our estimates. Credit costs remained elevated at 2.2% (vs 1.9% in Q1), though the management expects moderation in coming quarters with full-year levels contained at ~1.7%. Disbursement momentum is likely to remain strong in H2, supported by GST 2.0 benefits and a favorable monsoon, with management guidance of ~15% steady-state disbursement growth over the medium term, led by PVs, tractors, and used vehicles, alongside gradual scale-up in the mortgage and SME segments. Margins improved sequentially (~30bps) on lower cost of funds and better fee income; they are expected to improve further, though CoF benefits may be limited in coming quarters. Overall, the management remains constructive on rural cash-flow recovery, GST rationalization, and monsoon-led demand tailwinds driving AUM growth and better credit costs. That said, we expect growth and asset quality to stay under watch in the near term, keeping profitability moderate and, more importantly, the sustainable >2% RoA path still lacking visibility.

Outlook

We retain REDUCE on MMFS, raising Sep-26E target price by ~8% to Rs280 (from Rs260 earlier).

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