Mahindra Finance, CDSL, Aptus Value, Birla Corp, Route Mobile Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Mahindra Finance - Revisiting the FY25 roadmap

Mahindra & Mahindra Financial Services Ltd. reported yet another quarter of earnings de-growth (-10% YoY) due to higher-than-expected provisions (140 bps), driven by elevated write-offs (260 bps) and a one-off incidence of fraud (54 bps).

Loan growth remained healthy (+24% YoY), driven by the passenger vehicles and used vehicles segment. Mahindra Finance continues to under-deliver on its Mission 2025, as the management revisited its guidance on most parameters, especially net interest margins, opex efficiency and return on assets.

Mahindra Finance’s efforts towards reducing fraud, along with tech transformation and expansion of the distribution network, are likely to keep opex ratios elevated, although the product mix optimisation and focus on fee income are likely to partly cushion pressure on earnings.

We reduce our FY25/FY26E earnings estimates by 1%/4% to factor in lower loan growth and higher credit costs; we maintain Add with a revised SOTP-based target price of Rs 285 (implied standalone entity at 1.6 times Mar-26 adjusted book value per share).

CDSL - Strong growth engine

Central Depository Services Ltd. delivered another quarter of strong growth (+12/93% QoQ/YoY), led by a jump in market-linked revenue and a stable annuity stream. The growth was driven by higher transaction revenue, KYC fetch/creation and stable issuer revenue, offset by a drop in IPO/corporate action revenue.

The Demat account addition stood strong, and CDSL added ~10.9 million accounts in Q4 FY24 (the highest ever); it commands a leadership position with a 76.4% market share and 90% incremental share.

We expect slight moderation in the market-linked revenue in FY25/26E (~16% CAGR) after it clocked ~53% YoY growth in FY24. The rapid growth in the number of Demat accounts and retail folios will aid annuity revenue growth (~28% CAGR).

The insurance opportunity is a reality but currently lacks clarity. The progress on compulsory Demat of non-small private companies is slow (deadline Sep-24).

Investments in technology, increasing employee costs and regulatory compliance costs are leading to higher costs (+39% in FY24). Ebitda margins will be in the range of 60-62%.

We maintain our growth/EPS estimate for FY26E and assume a ~3- 4% contribution from the insurance opportunity.

We maintain our Buy rating with a target price of Rs 2,370, based on 40 times FY26E EPS. The stock is trading at a P/E of 43/36 times FY25/26E EPS and generates return on equity/return on invested capital of 31/72% in FY24.

Birla Corporation - Healthy margin; gearing lowest in past eight years

We maintain Buy on Birla Corporation Ltd., with a higher target price of Rs 1,940/share (nine times Mar-26E consolidated Ebitda). Cement sales volume grew 9/15% YoY/QoQ in Q4, aided by Mukutban ramp-up. NSR dipped only 1.6% QoQ on improvement in geo-mix and increase in premium sales.

Lower fixed/ freight costs drove opex down by 3% QoQ. Thus, unitary Ebitda expanded by Rs 60/million tonne QoQ to Rs 960/mt.

It expects to record incentive income for Mukutban FY25 onwards. Net debt to Ebitda cooled off to 2.2x in March 2024 (its lowest since Birla CorpP had acquired Reliance Cement in FY17).

We expect the gearing to remain under two times during FY25-26E despite its planned major expansion in the central region.

Route Mobile - Growth challenges but recovery ahead

Route Mobiles Ltd. reported a weak quarter with a revenue decline of 0.7% QoQ due to soft ILD volumes, a decline in MRM (client issue), and Masivian (seasonality). The ILD volume, which was impacted by cost savings initiatives by large ecommerce and OTT players, has stabilised.

The VI A2P SMS firewall deal started in April 2024 and volume will ramp up gradually. The Vodafone Idea Ltd. deal has a net new revenue potential of ~Rs 5 billion. Route has given a security deposit of Rs 3.8 billion related to the firewall deal which has impacted the operating cash generation for FY24.

We expect a growth revival in FY25E, led by better ILD volume (e-commerce deal), new wins in the domestic market, and contribution from the Vodafone Idea deal.

The deal with Proximus Group is expected to close in May 2024. The combined entity will bring synergies of $100 million and the target is to reach $1 billion revenue. The Ebitda margin will remain in the 12-12.5% range.

We cut our revenue/EPS estimate for FY26E by ~5% due to a delay in deal ramp-up. We maintain our Buy rating with a target price of Rs 1,780, based on 22 times FY26E EPS. The stock is trading at 22/19 times FY25/26E EPS.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.