Mahindra Finance Q3 Results Review - Lower Provisioning Drive Beat; Stressed Asset Pool Stable: Systematix

Systematix Research Report

Mahindra and Mahindra Financial Services Ltd. reported in-line net interest income at Rs 17 billion aided by 25% YoY growth in assets under management and 9 bps QoQ expansion in net interest margins (calculated) at 7.1%.

However due to lower-than-expected opex and provisions, operating profit/profit after tax came higher at Rs 10.6 billion/ 5.5 billion versus estimate of Rs 9.9 billion/4.6 billion.

Opex growth was controlled with 3% QoQ increase, and credit cost declined to 1.4% (versus 2.8% in Q2).

Mahindra Finance tweaked its expected credit loss model during the quarter, which reduced its provisioning requirement by Rs 860 million. As a result overall ECL provisioning declined by 26 bps to 3.8%.

Overall stressed assets pool (stage II plus stage-III) remains steady at 10% (gross stage-III ratio declined 30 bps to 4.3%; gross stage-II ratio increased 24 bps to 6%).

We have reduced our earnings estimates for FY24/25 by 9%/1% to factor in lower loan growth and net interest margins.

We maintain our 'Hold' rating, with an unchanged target price of Rs 260, as we roll over to March-26, valuing the company at ~1.5 times FY26E book value.

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