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

Emkay Global Financial's research report on Mahindra Finance

MMFS logged muted growth/profitability in Q4FY25, with key numbers largely in line with our estimate; but PPoP and PAT were ~5% lower than consensus estimates. Despite the management’s persistent efforts and initiatives in recent years toward diversifying away from the wheels business, MMFS remained dominated by wheels – around 93% (PVs: ~40%). This poses a challenge to near-term growth as the newer segments are still too small to drive AUM growth. Ahead, a sticky opex and marginal normalization in Credit Cost from the current superior levels are likely to limit scope for RoA improvement, driven by NIM+Fee expansion on account of increasing fee yield and moderating cost of funds (CoFs). To reflect the Q4 developments and future outlook, we tweak our FY26-27 estimates which leads to minor cut in our estimates. We introduce FY28 estimates and reiterate REDUCE on the stock with unchanged Mar-26E TP of Rs280 (implying FY27E P/B: 1.4x). Despite undemanding valuation, the uncertain and lower-than-peer profitability and growth limit the re-rating potential.

Outlook

To reflect the Q4 developments/outlook, we tweak our FY26-27 estimates, hence minor cuts to our estimate: i) reduce FY26-27E EPS, ii) increase credit cost estimate, iii) lower growth estimate. Combined, this would cause a ~25-45bps RoA contraction in FY26-27E. We reiterate REDUCE and retain Mar-26E TP of Rs 280, implying FY27E P/BV of 1.4x.

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