EUR 120.00 For Business Accounts Only

MOSL: MAHINDRA & MAHINDRA FINANCIAL (Buy)-Business growth continues to moderate

Mahindra & Mahindra Financial: Business growth continues to moderate

(MMFS IN, Mkt Cap USD3.1b, CMP INR352, TP INR420, 19% Upside, Buy)

 

• MMFS reported 3QFY20 PAT of INR3.7b (+15% YoY) – a 6% miss. Better-than-expected margins (NII beat of 6%) and opex performance (4% beat) led to PPoP beat of 13%. However, contingency provision (for customers who have a prolonged default history) of INR940m led to a PBT miss of 4%. Adjusted for the same, the PBT beat was 14%.
• Other highlights: (a) Loans were up 2.5% QoQ/12% YoY. (b) Spreads were up 10bp QoQ (9M v/s 1H). (c) Asset quality disappointed with GS3% up 60bp QoQ to 8.5%. (d) Share of securitization in borrowings increased to 15% from 12% last quarter.
• MMFS remains comfortable on the funding side. However, near-term growth challenges will remain with pressure in the underlying segment. We cut our estimates by 5% (led by higher provisions) and factor in ~13% AUM CAGR with RoA/RoE of 2.2%/15%. Maintain Buy. 

Mid-teens AUM growth; NIM improves

• Value of assets financed declined by 4% for 3Q/9M, leading to further moderation in loan growth to 12% YoY. While AUM mix was largely stable, MMFS would place a greater focus on pre-owned vehicle book.
• Reported gross spreads (derived from cumulative reported) improved 30bp QoQ to 7.9%, which surprised us positively.
• MMFS continues to reduce its dependence on term loans from banks and NCDs while offsetting it with increased PSL securitization (share up from 6% in 3QFY19 to 12% in 2QFY20 and 15% currently) and more fixed deposits (share up from 9% to 14% YoY).