Mahindra Finance Q1 Results Review - Net Profit Miss On Higher Credit Cost; PPOP Inline: Dolat Capital

Dolat Capital Report

Mahindra and Mahindra Financial Services Ltd. reported profit after tax of Rs 3.5 billion (down 48% QoQ; +58% YoY) and 35% below our estimate. The miss is attributable to higher credit cost of 2.5% (estimate: 1.2%) on account of write-off amounting to Rs 3 billion (down 48% QoQ and 45% YoY).

Gross stage-III ratio improved 14 bps QoQ while 50 bps adjusted for write-offs.

Pre-provision operating profit came inline at Rs 10 billion sustaining a PPOP return on asset of 4.7%.

This was aided by lower opex to assets (down 70 bps QoQ) offsetting a sharp decline (70 bps QoQ) in net interest margin on account of higher cost of funds (+20 bps QoQ) and rising share of lower yielding prime book.

Mahindra Finance expects an improving trajectory for margin hereon.

We view the risk reward is turning favorable with growth returning (FY23 / Q1 FY24 disbursements up 80% / 28% YoY respectively) and asset quality fears abating.

However, we will look for consistency in delivery on the new strategy (profitability of growth and stable asset quality) for turning constructive on the company outlook.

Maintain reduce with a revised target price to Rs 325 (+3%) on higher business growth.

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