M&M Financial Gets 'Overweight' Upgrade From JPMorgan

JPMorgan has upgraded its rating on Mahindra & Mahindra Financial Services Ltd. to 'overweight' from 'underweight', with price target upgrade to Rs 320. This marks a shift from their previous cautious stance, driven by several key factors.

The brokerage highlighted the potential for positive rural momentum in 2025, which is expected to benefit MMFS. The company has faced challenges over the past two years, with rising costs of funds and an adverse mix impacting net interest margins. However, the base for return on assets has been reasonably reset to 1.8-2%, down from the previous guidance of 2.2-2.5%, according to the analysts. They expect NIMs to improve due to a favourable rate cycle and a positive tractor cycle.

MMFS has shown improvement in disbursements growth, particularly in the third quarter, with strong traction in the tractor and SME segments, the brokerage said.

The company’s diversification into newer segments such as mortgages and SMEs is expected to aid disbursements growth in the near to mid-term. However, the true test of asset quality in these newer segments will follow with a lag, JPMorgan cautioned.

The brokerage anticipates an increase in credit costs in FY26, as the levers around provision coverage ratio reduction have been utilised. They estimate credit costs to rise in FY26/27, compared to FY25. Improving overall collection efficiency and containing write-offs will be crucial to keeping credit costs within the guided range of 1.3-1.5%.

At 12.5 times FY26 estimated price-to-earnings, JPMorgan considers MMFS’ valuations reasonable for positioning in the positive rural momentum expected in 2025. The upcoming rights issue is seen as a key overhang, with its completion expected to be a near-term clearing event.