Mahindra & Mahindra Financial Services (MMFS) reported a healthy set of Q2FY21 numbers wherein steady AUM led to a reasonable topline. However, outlook on asset quality looks difficult with uncertainty on substantial proportion of AUM. Advances growth was broadly flattish at ~0.9% YoY to Rs. 64389 crore, led by decline in growth for commercial (down ~70% YoY) and pre-owned vehicles (down ~61% YoY). Disbursements declined 45% YoY, though sequential witnessed revival of 55% to Rs. 5400 crore. Maintaining excess liquidity was partially offset by a reduction of interest rates, which led gross spreads to decline ~20 bps YoY to 7.4% (7.3% in Q1FY21).
Valuation & Outlook
A gradual recovery in auto sales and rural economy bodes well for MMFS. The management expects a pick-up in AUM growth at ~8-10% in FY21E and ~15-20% in FY22E. However, our estimates remain a bit conservative. We expect continued focus on cost to aid earnings. A gradual revival is expected in business momentum but the asset quality trend remains uncertain and is keenly watched. Therefore, we maintain our HOLD rating on the stock with a revised target price of Rs. 140/share (earlier Rs. 160), valuing core auto business at ~1.1x FY22E ABV and ~Rs. 12 as value for subsidiaries (post assuming 20% holding company discount).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_MMFS_Q2FY21.pdf
Shares of MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD. was last trading in BSE at Rs.125.65 as compared to the previous close of Rs. 130.85. The total number of shares traded during the day was 901801 in over 8806 trades.
The stock hit an intraday high of Rs. 132.8 and intraday low of 125. The net turnover during the day was Rs. 114340683.