Emkay Global Financial recommended hold rating on Mahindra Finance with a target price of Rs 188 in its research report dated July 19, 2020.
Emkay Global Financial's report on Mahindra Finance
MMFS reported a PAT of Rs1.6bn (127% yoy, -30% qoq) in Q1FY21 amid a sharp surge in credit costs but supported by relatively strong demand from the tractor segment and gains arising from stake sale in the AMC business. Disbursements during the quarter declined ~67% yoy due to the lockdown across the country, yet tractor disbursements (-34% yoy) supported overall sales. AUM growth was ~14% yoy and ~6% qoq; however, this was mainly supported by lower repayments/prepayments amid ~70% of the customers adopting moratorium. MMFS has reported an exceptional gain of Rs61mn on the sale of the AMC business. ~70% of customers still remain under moratorium; however; the company reported that ~40% of customers opting for moratorium has started with repaying since June 2020. Gross Stage 3 level NPAs eased sequentially to 9.2% from 8.4% last quarter, whereas Net Stage 3 level improved to 5.7% for the quarter vs. 6.0% as of March 2020. Stage 3 provisioning coverage ratio improved sequentially to 40% (including Stage 1, 2 provisions) vs. ~31% last quarter. MMFS has announced the right issue ratio as 1:1 at a price of Rs50. The issue price is at a discount of 76% to the market price. The dilution would result in a drop in our RoE estimate to 6.5%/9% for FY22E/23 vs. 8%/11% previously. The issue at a steep discount to the current price makes the stock extremely expensive (post dilution) to 2.4x P/Adjusted FY22E book against 1.3x P/Adjusted FY22E book earlier. Hence, we expect a strong negative reaction in the stock price in the near term. The issue opens on 28 July 2020 and closes on 11 August 2020.
Outlook
The post-results conference call is scheduled on 20 July 2020. We currently have a Hold rating on the stock with a target price of Rs188.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Read More