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Centrum Broking
M&M Financial Services (Buy)
CMP: ₹416.15
Target: ₹740
Net interest income (NII) came in at ₹1,270 crore versus our estimate of ₹1,250 crore. As the numbers were restated under Ind-AS, AuM growth came in at a healthy 27 per cent y-o-y versus our expectation of 20 per cent. Disbursements were down 11.8 per cent q-o-q driven by tractors/cars and the SME segment. Operating expenses were higher (+28.0 per cent y-o-y) partially on account of compensation paid to improve collection efficiency (CE). Operating profit came in at ₹780 crore (+28.4 per cent y-o-y). Asset quality improved due to higher CE and recoveries that saw a provision write back, although lower PCR at 19.2 per cent (versus 26.9 per cent q-o-q) remains a concern. GNPA witnessed a q-o-q improvement to 5.9 per cent (-180 bps q-o-q). Consequently, net profit was ₹590 crore. FY19 net profit was ₹1,560 crore (vs ₹1,008 crore in FY18).
Valuation and risks: We remain cautious given past asset quality issues and lack of consistency. We, however, are structurally optimistic on the rural space given the government’s focus. Maintain target multiple at 2.6x FY21E ABV and slightly raise our target price to ₹470. Risks to our call include lower AuM growth and higher delinquencies.
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