Kotak Institutional Equities
Mahindra Finance’s disbursements growth declined to 4% in Q2FY14 from 25-30%. The focus on recoveries and the losses thereon kept credit costs elevated. Consequently, PAT growth was lower at 18% y-o-y (6% below estimates) even as PBT before provisions was up 28% y-o-y. The management has guided for moderation in disbursements to the mid-teens, but a normal monsoon and the upcoming festive season may drive traction in the near term. We tweak estimates and roll over target price to R240 (from R230). Retain ‘reduce’.
The management has guided for 15-17% growth in disbursements over the next few quarters. We are modeling 25% y-o-y loan growth in FY2014E and 20-22% over the next two years. MMFS continues to invest in branches and increase expenses in anticipation of higher business volumes. We, hence, expect disbursements to pick up in H2 even as we retain higher credit cost estimates (1.6-1.8% of average assets vis-à-vis 1.4% in FY2013 and 1% in FY2012).
MMFS reported core PBT of R4,600 crore, up 28% y-o-y and 1% below estimates. Profit growth was low at 18% y-o-y; it was R2,200 crore against our estimate of R2,350 crore.
We are tweaking down our estimates by 1-2% to factor a lower NIM and credit cost for FY2014E. We now expect MMFS to deliver 25% loan growth and 21% earnings growth in 2HFY14, followed by 14-20% growth over the next two years; medium-term RoE will be about 22%. We expect MMFS to trade at 2.4X 1-year forward PBR.
- Kotak Institutional Equities