M&M Fin: Keep ‘add’ with revised TP of Rs 183

Harassed belongings largely regular; second wave poses uncertainty.

By HDFC Securities Institutional Analysis

Mahindra and Mahindra Monetary Providers (MMFS) reported an in-line working efficiency, registering NII/PPOP development of 13.2%/9.4% YoY, with higher-than-expected NII (largely on account of decrease value of funds) and working expenditure having off-setting impacts. Disbursements have been muted (-15% YoY, -5percentQoQ) (CV/CE but to choose up) and are prone to stay muted in 1QFY22 as properly. The corporate reported higher- than-expected credit score prices (4.7%), shoring up its GS-III provisions to 58% (3QFY21: 37%), bringing down its NNPA to 4% (3QFY21: 6.6%) on the RBI’s recommendation. With seemingly muted choose up in disbursement and restoration amid a second pan-India Covid wave, we have now revised our FY22/23E earnings estimates decrease by 17.8/6.8%.

Comparatively cheap valuations and MMFS’ parentage-enabled entry to funds underpin our ‘add’ score (revised TP of Rs 183) (implied valuation at 1.3x Mar’23 ABVPS).

Elevated provisioning shores up PCR to a wholesome 58%. MMFS’s non-tax provisions remained elevated at Rs 8.9bn (4.4% of common AUM, annualised), forward of our estimates. As per administration, the elevated provisioning is consistent with the regulator’s suggestion to convey NNPA under 4%. With ECL provisions now at 7.2% of AUM (GS-III PCR at 58%), we anticipate credit score prices to reasonable throughout FY22 (2.9%).

Harassed belongings largely regular; second wave poses uncertainty. MMFS’s harassed asset pool (GS II + GS III) dipped in the course of the quarter to ~21.5% of AUM (3QFY21: 24.1%), largely on account of write-offs (Rs 6.3billion), together with ~14% of the debtors below moratorium (3QFY21: 16%) not making any fee since Sep’20. Nonetheless, the second Covid wave poses threat to the tempo of collections, with the agricultural section additionally being impacted this time.

Disbursement pickup taking a bit longer. Regardless of a diversified portfolio, MMFS’s disbursals are nonetheless at ~56% of pre-Covid ranges (Rs 60billion vs common of Rs 106 billlion in FY20), largely on account of slowdown in CV/CE section and lack of buoyancy in different segments. We construct in an AUM CAGR of 10.7% over FY22-23E, prone to materialise solely from H2FY22.

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