Motilal Oswal is bullish on Mahindra Financial Services has recommended buy rating on the stock with a target price of Rs 400 in its research report dated July 24, 2019.
Motilal Oswal's research report on Mahindra Financial Services
MMFS reported PAT of INR0.7b, significantly below our estimate of INR3.2b, due to higher-than-expected operating expenses and a sharp jump in provisions. Asset quality: As 1Q is a seasonally weak quarter, the GNPL ratio increased 150bp QoQ to 7.4%. At the same time, MMFS increased its PCR on stage 3 assets by ~600bp to 25%. These two factors resulted in an unexpectedly high credit cost of INR6.2b for the quarter. AUM growth remained strong at 6% QoQ/22% YoY. On a sequential basis, AUM mix was unchanged, with car/UV and tractor financing comprising 47%/17% of total AUM. Opex increased 45% YoY to INR5.6b owing to one-time employee
gratuity and other expenses of INR300m. With the margins largely stable at 7.9% YoY, NII grew by a healthy 18% YoY to INR12.8b (3% beat). The share of securitized assets increased from 1% of total borrowings in the year-ago period to 9% in 1QFY20.
Outlook
We cut our estimates for PPoP by 5-7% and PAT by 15-18% to factor in higher credit costs. Maintain Buy with a target price of INR400 (SOTP-based).
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