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Centrum Broking
M&M Financial (Sell)
CMP: ₹422.65
Target: ₹250
Mahindra & Mahindra Financial Services Ltd (MMFS) is a non-banking financial company (NBFC). The company serves the financing needs of population residing in rural and semi-urban areas of India. The company provides a range of retail products and services, such as financing vehicles for commercial and personal use, tractors, small and medium enterprise (SME) loans and various other financial products.
We retain ‘Sell’ on MMFS with a target price maintained at ₹250. September quarter (Q2) results were marred by higher provisioning and was essentially following the migration to 90-dpd of NPA recognition, ahead of the stipulated time. The improvement in industry-wide auto volumes coupled with gradual recovery in rural markets (as also validated from our channel checks) bodes well for MMFS both from growth and asset quality perspective. We, thus expect earnings to re-bounce sharply over FY17-19E. Capital position remains thin; impending dilution risk could see RoE’s dip further. Valuations at 4.2x FY19E ABV, thus continue to remain expensive. Prefer Sundaram Finance over MMFS in the asset financing space.
Key risks: Higher than expected recovery/ pick-up in volumes.
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