Sell M and M Financial Services; target of Rs 390: Centrum Research

Centrum Research's research report on M and M Financial Services

We retain Sell on MMFS with TP revised upwards to Rs390 (vs. Rs380 earlier). Q1’19 results were inline with our estimates on revenue end / higher on earnings front following lower provisions. AuM / Value of assets financed (VoAf) grew 21.1% YoY / 35.3% YoY, highest in the past several quarters. Commentaries on growth, asset quality remain encouraging and we have factored the same into our estimates. We continue to believe that valuations at 3.3x FY20E ABV for an exit RoE of 16% remain expensive. Retain SELL. Prefer Sundaram Finance in the asset financing space.

Outlook

Even as we build in strong recovery in earnings over FY18-20E, we continue to believe that valuations at 3.3x FY20E ABV for exit RoE of 16% by end-FY20E remain expensive. Retail SELL with TP at Rs390 (valued at 2.5x FY20E ABV). Key risks: Higher than expected AuM growth / lower slippages and thus reduced credit cost.