Mahindra Finance - Fraud Detected At One Of The Branches; Downgrade To Sell: Centrum Broking

Centrum Broking Report

Mahindra and Mahindra Financial Services Ltd. in its press release stated that it has detected fraud in one of the company’s branches in the North East. The fraud involved forgery of KYC documents in retail vehicle loan disbursals leading to embezzlement of company funds.

The company estimates that the financial impact of this fraud is unlikely to exceed Rs 1.5 billion. The fraud involved Area Business Manager and other employees of the concerned branch of the Company in North East.

Investigations are at an advances stage, necessary corrective actions have been identified and are at various stages of implementation, including arrests of few persons involved. The estimated amount involved of Rs 1.5 billion is almost 3.7 times of average company disbursements of Rs 410 million per branch suggesting that fraud has been going on for several months/years.

This may impact our earnings estimates for Q4 FY24 and FY24 by ~22% and 8.2%, respectively and Net worth by ~0.8% for FY24E.

In our view, there may slowdown in growth as company works on strengthening its internal processes. The board meeting to consider financial results for Q4 FY24 and full year FY24 has been deferred to 30th May 2024.

We expect more clarity on this fraud and corrective actions initiated during 4Q results. Given the negative development, we have cut our Target multiple on standalone business to 1.5 times from two times earlier.

We roll forward to FY26 from H1 FY26 and value the standalone business at Rs 230 and subsidiaries at Rs 19 to arrive at our target price of Rs 249. Downgrade to Sell.

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