Mahindra Financial Services: Maintain ‘Buy’; TP at Rs 525

By: |
New Delhi | Published: November 7, 2018 12:18:53 AM

MMFS reported PAT of Rs 3.8b (up 1.5x y-o-y) under Ind-AS. The quarter was marked by robust disbursement and AUM growth, and an improvement in margins.

Mahindra Fin Services: Maintain ‘Buy’; TP at Rs 525

MMFS reported PAT of Rs 3.8b (up 1.5x y-o-y) under Ind-AS. The quarter was marked by robust disbursement and AUM growth, and an improvement in margins. Continuing the trend of the prior quarter, value of assets financed grew 44% y-o-y to Rs 109b.

Consequently, reported AUM grew 6% q-o-q (+27% y-o-y) to Rs 595b. Over the past year, the share of Auto/UV declined from 28% to 25%, the impact of which was offset by an increase in the share of SME financing (12% to 14%). Calculated NIM on AUM expanded 130bp y-o-y to 8.4%, driven largely by a higher yield on loans (driven by product mix and general yield hikes), despite an increase in cost of funds.

Total provisions as a percentage of loans stood at 3.0% v/s 3.1% a quarter ago and 4.3% a year ago. PCR including standard assets provisions was largely stable q-o-q at 59%. Management commented that it is presently borrowing from every possible source. However, it is keeping a close watch on the evolving liquidity situation.

Given strong collections, management is comfortable about the liquidity position for the next six months. The business environment for MMFS is getting better, with multiple tailwinds in each product class. Asset quality has improved consistently over the past few quarters. Improvement in credit costs and growth will drive an increase in RoE to ~15%+ in FY20.

MMFS’ long-term prospects remain strong. We raise our EPS estimates by ~20% for FY19/20 on the back of the robust operating and asset quality performance. Our SoTP-based target price is `525 (Sept-2020 based). Maintain ‘Buy’.

Continuing the trend of the prior quarter, value of assets financed grew 44% y-o-y to Rs 108b. Reported AUM grew 6% q-o-q/ 27% y-o-y to `595b. Growth was driven by tractors, CV and SME segments. Over the past year, the share of Auto/UV declined from 28% to 25%, which was offset by SME financing (12% to 14%). Calculated NIM on AUM expanded 130bp y-o-y to 8.4%, driven by higher yield on loans (better asset quality performance) despite increase in cost of funds. MMFS raised inter-corporate deposits from its group Mahindra companies as well as the parent. Opex grew slower than AUM at 28% y-o-y, resulting in some operating leverage.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.