Mahindra Finance shares: Mahindra & Mahindra Financial Services Ltd (Mahindra Finance) reported in its March quarter business update that while asset growth remained robust, the pace of disbursement growth for the NBFC slowed down. Disbursements for the fourth quarter totaled Rs 15,300 crore, marking an 11% increase year-on-year. However, in March, the growth in disbursements decelerated to 9%, compared to 13% in February and 10% in January. Notably, disbursement growth had been significantly higher at 46% year-on-year in the March 2023 quarter, 53% in the February 2023 quarter, and 72% in the January 203 quarter.
The gross non-performing asset (NPA) or gross stage 3 assets of Mahindra Finance has shown steady improvement over the past seven quarters, reaching 3.3% in Q4FY24. Analysts observed that this figure represents the lowest level since FY13. However, opinions on the stock’s prospects vary due to differing views on credit costs and stock valuations. – Mahindra Finance shares
After the Q4 update, Nomura India upheld its ‘Reduce’ rating on Mahindra Finance stock, pointing to a larger proportion of assets under management (54% of AUM) being in fiercely competitive segments such as auto/cars. This could potentially result in adverse effects on yields.
It stated that M&M Finance’s credit cost is projected to remain elevated due to the company’s captive structure and a multi-year low in overall ECL provision of 3.8%. The average credit cost (as a percentage of assets) was 2% in 9M24, and it must be 0.9% in 4Q24 to meet the upper limit of the credit cost forecast of 1.5-1.7% in FY24.
Additionally, it was noted that Mahindra Finance exhibits underwhelming profitability on a structural basis, with its five and ten-year Return on Equity (RoE) standing at 9% and 11% respectively, which is the lowest among its peers. Nomura also expressed concerns regarding its expensive valuation and recommended a target of Rs 240, valuing MMFS at 1.4 times FY26F BVPS.
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“InCred Equities stated that MMFS is among our top conviction stock picks due to its appealing risk-reward ratio and improving return metrics. We maintain our high-conviction ADD rating on MMFS, setting a target price of Rs370. This valuation is based on valuing the standalone entity at 2.2 times FY25F BV and adding Rs20 per share for its subsidiaries,” remarked InCred Equities.
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