Prabhudas Lilladher is bullish on Mahindra & Mahindra Financial Services (MMFS) and has recommended accumulate rating on the stock with a target price of Rs 280 in its March 17, 2015 research report.
"We met the management of Mahindra & Mahindra Financial Services to assess the rural loan demand scenario and asset quality trends witnessed by the company. While the pace of deterioration in asset quality has slowed, the recovery in loan growth and margins is likely to be gradual. The fresh disbursements are likely to pick‐up after showing a revival in Q3FY15 however the overall AUM growth is likely to remain modest. MMFS has underperformed the broader market by ~20% over past three months due to concerns on slowing loan growth and high NPL formation. We are revising our estimates downwards to factor in higher credit cost & lower loan growth and thus revise our PT to Rs280 (from Rs300 earlier) based on 2.6x FY17E ABV. We upgrade our rating to Accumulate from Reduce. Weak agri product prices, delayed economic recovery and recent unseasonal rains remains the key risk to our call."
"Business growth is likely to be slow & gradual as economic activity still remains suppressed while farmers have been facing cash flow issues due to (i) non‐payment for produce, (ii) weak prices for few crops (rubber, cotton, soya etc) in international markets, (iii) limited hike in MSP, and, (iv) crop damage due to recent unseasonal rains. However some green shoots are visible in UVs/CVs & Cars but is limited to specific geographies (please see exhibit 1 for comments on various geographies). New customer acquisition rate has moderated to 45,000‐ 47,000 customers per month even as the company maintains a cautious approach on fresh disbursements (9MFY15 disbursement growth stand at: ‐8%)."
"The Management continues to remain cautious on business growth & asset quality for next 2‐3 quarters as states have been facing large issues simultaneously from unseasonal rains, reduced infrastructure activity & bans on various mining activities. We cut our earnings by 16% in FY15E & 5% in FY16E on slow business growth and weak asset quality will keep credit cost high. But management is optimistic on the benefit from greater devolvement of revenue to states from centre which will help develop sustainable social schemes as well as spend on economic & social infrastructure and bring back rural economy story on track. Recent underperformance (~20% in 3 months), stabilizing asset quality and prospects of revival in loan growth from 2HFY16 led us to upgrade our rating to Accumulate from Reduce", says Prabhudas Lilladher's research report.
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