Emkay Global Financial's report on Mahindra Finance
MMFS reported a net loss of Rs1.53bn in Q1FY22 (Emkay estimate: Rs2.4bn profit) due to weak growth momentum and a surge in provisions. MMFS increased provisions by 234.5% yoy/218.1% qoq to Rs28.2bn amid deteriorating asset quality. Management made an additional overlay of Rs3.9bn, resulting in a total management overlay of Rs27.1bn. Disbursements remained weak at Rs38.7bn (+42% yoy, -35% qoq). AUM declined ~3.3% qoq (-3% yoy) to Rs789.6bn. Demand remains weak across segments, but management is optimistic about growth in H2FY22 with the normalization in activities. However, any signs of the third Covid wave could weigh on growth. GNPA increased to ~15.5%, mainly contributed by cab aggregators, buses, and MHCV portfolios. The trend in recoveries has been improving since Jun’21 and management remains confident of recoveries and provision reversals by Q4FY21. However, considering past experiences and current restructured book (~2.8% of AUM), we remain cautious.
Outlook
We trim FY23E/24E earnings by ~3%/3.8% and roll forward to Sep’22 to arrive at a TP of Rs150 (Rs158 earlier), corresponding to ~1.1x Sep’23E Book. Maintain Hold and EW in EAP. We see a limited downside hereon, considering favorable risk-reward. However, we expect MMFS to continue to underperform other vehicle financiers.
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