Sell M&M Financial Services; target of Rs 215: Emkay

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Emkay's research report on M&M Financial ServicesMMFS’ Q2FY16 earnings came in 18% below our estimates on account of one-time costs of Rs610m associated with its transition from 150-dpd to 135-dpd NPL recognition method ahead of the RBI’s implementation schedule Disappointments were 1) a 20% qoq jump in gross NPLs to 9.4% - nearly half of it coming from migration to 135-dpd NPL recognition and the rest driven by the persistent stress in the business and 2) fresh deployments remain sluggish and demand triggers in rural India are not in sight as yet; Only respite is falling funding costs (down ~36bp yoy / ~10bp qoq) The slowdown in rural India is taking a toll on MMFS’ performance and the management’s decision to proactively move towards 120-dpd NPL recognition (in a phased manner) puts further strain on earnings; Poor monsoon, inadequate government spending on rural infrastructure and migration from 135-dpd to 120-dpd NPL recognition by March 2016 can likely keep growth and earnings under pressure. We cut our FY16/17 EPS estimates by 8%/4%; In our view, valuations are rich given the near term challenges and deteriorating returns profile relative to peers. Maintain Sell.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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