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Centrum Broking
M&M Financial Services (Hold)
CMP: ₹403.15
Target: ₹450
M&M Financial Services’ net interest income (NII) at ₹1,200 crore (+20.1 per cent y-o-y) was slightly higher than our estimate, driven by 30 per cent y-o-y growth in assets under management (AUM). Net interest margin at 7.9 per cent remained flat q-o-q. Employee expenses saw a surge (+33 per cent y-o-y) owing to a one-time ex-gratia payment of ₹2.7 crore, while other expenses were higher (+42.4 per cent y-o-y) due to faster branch additions.
Key takeaways: M&M Financial has added 135 branches in the past 12-months; management has hinted at adding another 100 branches in the next one year. Operating profit at ₹740 crore (+12.4 per cent y-o-y), thus, was lower than our estimate. Gross NPA (stage 3) looks optically lower, declining 130 bps q-o-q to 7.7 per cent, on account of write-offs, thus leading to a lower PCR of 27 per cent (vs 35 per cent q-o-q). Provisions were in-line at ₹220 crore. PAT stood at ₹320 crore (versus our estimates of ₹380 crore).
Key concerns: A sharp drop in PCR (stage 3) and elevated NPAs in the housing portfolio (albeit on a decline). MMFS has been gaining market share and dependence on M&M’s product portfolio has been declining. However, we expect the industry-wide moderation in auto volumes to impact overall AUM growth. Valuations at 2.2x FY21E core ABV limit upside.
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