Asset quality volatility historically has been the concern for Mahindra Finance; However, management has taken steps to bring the stability over the period.
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IDBI Capital Report
Mahindra and Mahindra Financial Services Ltd. reported improvement in net interest margins led by increase in yield on assets. Management guided for NIMs to remain around 6.5 -6.7% range for FY25 while improve to 7% in longer term.
Asset quality remain stable with GS3 at 3.9% vs 3.8% QoQ led by higher write offs. Q4 generally is strong quarter with respect to collections. AUM growth slowed down to 19% YoY (20% YoY Q2FY25) led by lower disbursements; we expect 16% CAGR (FY25-27E).
Net interest income grew by 18% YoY led by decline in NIMs. Pre-provision operating profit grew by 15% YoY led by lower other income (down 96% YoY). However, PAT increased by 63% YoY led by lower provisions (down 97% YoY). Thus, RoA improved to 2% (9M FY25) versus 1.5% (9M FY24) in line with guidance of 1.8-2.0% FY25.
We have rolled over to FY27 estimates. We upgrade to BUY with new target price of Rs 325 (earlier Rs 315) valuing it at 1.8X FY27E adjusted book value.
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