‘Add’ M&M Fin on positive growth outlook
We believe Mahindra Finance is one of the best plays on the rural finance theme. We are positive about the company’s growth in auto finance (car and UV finance) even as tractor and CV finance may be subdued. We find no sign of significant stress in the portfolio, but continue to model a rise in credit cost from the lows of FY12.
We believe the key operating matrices of M&M Financial are likely to be stable even with a high base. We expect the company to deliver 23% EPS CAGR due to loan-book CAGR of over 25% between FY12 and FY15e and stable margins, even as we model high credit costs on a low base.
M&M Financial has built a diversified product portfolio that helped it to cope with a slowdown in individual segments. While the company capitalised on the tractor finance business after M&M acquired Punjab Tractors (PTL), its focus on car finance (initially with Maruti and, now, with other players) aided high growth over the past two years. Its share of CVs rose 5% at the cost of UVs, whose share declined 5%.
The company reported stable NIM y-o-y in H1FY13. We expect NIM to rise in H2FY13, but largely due to the recent capital issuance
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