Mahindra Finance - Q1 FY22 first cut - YES Securities

Another dejecting quarter

- MMFS reports a large loss of Rs15.3bn (10%+ of Networth) v/s our expectation of some profits - a substantial deterioration in PAR metric depresses NII and inflates Credit Cost

- Lockdown/restrictions impacted customers' income and co's ability to collect - collection Efficiency for April, May and June stood at 72%, 67% and 90% respectively

- Stage-1 assets declined from 78.5% as of March to 65% as of June - Stage-3 jumped from 9% to 15.5% - Restructuring increased from a negligible figure to 3%+ (part of Stage-2 assets)

- Significant addition to Stage-3 caused substantial interest reversal (250-300 bps decline in portfolio yield) that dropped NIM (Gross Spread) from 7.7% to 6.3% on qoq basis

- PAR 30 increased from 21.5% to 35%+ on sequential basis incl. write-off (estimated Rs5-6bn) - this sharp movement mandated ECL provisioning of Rs24.3bn in Q1 FY22 - additionally, management topped up ECL overlay by Rs3.9bn taking the total to Rs27.1bn (all included in 54% ECL coverage on Stage-3)

- Disbursements were expectedly lower in the quarter at Rs39bn (35% lower qoq) and thus Business Assets declined by 1.6% qoq (mitigated to an extent helped by lower collections too)

- Management expects provision reversals on majority loan contracts sitting in Stage 2 & 3 buckets during H2 FY22, as these customers have either made part-payments (carrying an intention to pay) or have repaid 50% of the loan amount (high collateral comfort) - July is trending better than June on collections

- The vulnerability of the portfolio (reflected in collections impact) disappoints yet again, and this time quite meaningfully. MMFS has made upfront provisions (departure from usual) on the stress flow and raised ECL coverage to 11% of loan assets. In the absence of a severe third wave, provisions could reverse with rollbacks in delinquent buckets. Stock trades at 1.2-1.3x FY23 P/ABV, reflecting limited room for de-rating but a far better room for re-rating if collections were to not witness another disruptive phase. Currently have a BUY Reco.

Shares of MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD. was last trading in BSE at Rs. 148.05 as compared to the previous close of Rs. 146.15. The total number of shares traded during the day was 879596 in over 6463 trades.

The stock hit an intraday high of Rs. 150.4 and intraday low of 145.5. The net turnover during the day was Rs. 130325101.

Source : Equity Bulls

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