YES Securities is bullish on Mahindra Financial Services has recommended buy rating on the stock with a target price of Rs 290 in its research report dated July 20, 2020.
YES Securities' research report on Mahindra Financial Services
In a weak macro environment, MMFS posted a commendable operating show with PPOP rising 8% qoq and 44% yoy. Key positive surprise was a substantial decline in opex. Lower disbursements (down 67% yoy) and collections (75% of customers under moratorium) suppressed large variable cost components like travelling, commissions and conveyance. Renegotiation of fixed costs (rentals, outsourced services, etc.) and reduction in discretionary costs (advertising, etc.) also pulled down the opex. On-roll manpower has been coming down as company is not replenishing attrition.
Outlook
Upgrade Reco to BUY from ADD. Raise FY21/22 profit estimates by significantly cutting the opex. Largely retained credit cost estimates despite management commentary suggesting upside risk. Characteristic of being a rural proxy and a pro-cyclical franchise to drive faster normalization of return ratios. Raise 12m TP to Rs290 (unadjusted for rights).
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