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ICICI Securities
M&M Fin (Reduce)
Target: ₹145
CMP: ₹168.1
Mahindra & Mahindra Financial Services (MMFS), in its August business update, indicated 57 per cent y-o-y disbursement growth to ₹2,150 crore (moderating a tad from ₹2,400 crore in July). July/August trend suggests Q2 FY22 disbursement growth of 65 per cent y-o-y/70 per cent q-o-q, albeit on a low base, while collection efficiency is improving m-o-m to 97 per cent.
It is still near February 21 level and lower than March 2021 level. Compared to stable-to-marginal decline trend in July, there was meaningful reduction in NPA contracts in August and is expected to continue in September as well. With revival in economic activity, there was hope on roll-backs, upgrades and provisioning write-backs. With improved customer cashflow and reduction in stress bucket, visibility enhances on stage-3 assets being managed at nearly 11 per cent by Q4 FY22 (15.5 per cent in Q1-FY22).
Endeavour to contain net stage-3 at less than 4 per cent will keep credit cost elevated. With over 50 per cent disbursement growth in H1 FY22, we now estimate AUM growth at 7 per cent for FY22 (earlier about 5 per cent).
Volatility in earnings, asset quality behaviour and growth underperformance to peers would cap re-rating beyond 1.1x FY23 book.
Maintain our Reduce rating on the stock with a revised target price of ₹145 (earlier: ₹135).
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