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Motilal Oswal Report
Mahindra and Mahindra Financial Services Ltd. reported strong earnings beat with Q4 FY23 profit after tax of Rs 6.8 billion, which grew 14% YoY.
The growth was aided by a sharp improvement in asset quality that translated into almost NIL credit costs despite write-offs of ~Rs 6 billion during the quarter.
FY23 profit after tax of ~Rs 19.8 billion grew ~101% YoY. FY23 credit costs stood at 1.35% while return on asset/return on equity stood at 2.3%/13.0%.
Mahindra Finance has made a good progress towards its Mission 2025 targets across assets under management growth, asset quality, net interest margin and return on asset.
With process enhancements across sourcing, underwriting and collections, we expect the asset quality improvement to sustain and now model lower credit costs of ~1.7%/1.9% in FY24/FY25.
Margin compression (in a rising rate environment) can be partly mitigated by the change in product mix.
We raise our FY24E/FY25E profit after tax by 10%/13% to factor in higher loan growth and lower credit costs. We model an AUM and profit after tax compound annual growth rate of 20% and 19% over FY23-FY25E for an FY25 return on asset and return on equity of 2.3% and 15.0%, respectively.
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