M&M Financial Shares Slump As Brokerages Criticise Q4 Performance, Cut Price Targets
Mahindra & Mahindra Financial Services Ltd. signage is displayed outside one of the company’s branches in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

M&M Financial Shares Slump As Brokerages Criticise Q4 Performance, Cut Price Targets

Shares of Mahindra & Mahindra Financial Services Ltd. fell to the lowest in more than two months after analysts highlighted muted disbursements, loss of market share across key segments and growth challenges.

The company posted an 8% sequential decline in net profit at Rs 219 crore in the quarter ended March, according to an exchange filing. The bottom line for the full fiscal was 28% lower than the preceding year at Rs 780 crore.

  • Standalone assets under management, comprising loan assets and investments, stood at Rs 81,689 crore on March 31, 2021, against Rs 77,160 crore a year ago.

  • Total investment book stood at Rs 11,607 crore as of March 2021 compared with Rs 5,911 crore a year ago.

  • The company, which finances vehicles and tractors, saw its loan assets fall to Rs 64,608 crore as of March 2021 from Rs 68,089 crore a year ago.

  • Disbursements were down 41% to Rs 19,001 crore in FY21.

Shares of M&M Financial fell as much as 9.92% to Rs 161.15 before paring losses. Of the 34 analysts tracking the company, 17 have a ‘buy’ rating, 13 suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price targets implies an upside of 17.6%.

Here’s what analysts have to say about M&M Financial’s Q4 performance:

Prabhudas Lilladher

  • Rates ‘sell’, cuts target price to Rs 153 from Rs 200 apiece.

  • Earnings were disappointing due to sustained elevated NPA levels at 9% and bleak recovery scenario with 19% of total moratorium availed contracts exhibiting zero payments until September 2020.

  • Write-offs climbed to 5% in FY21 vs 1% in FY19.

  • Disbursals in tractor, commercial vehicle divisions were tepid, coupled with market share loss in flagship business.

Also read: M&M Financial Services Q4 Review - On The Descent: Prabhudas Lilladher

ICICI Securities

  • Downgrades to ‘reduce’ from ‘add’, cuts target price to Rs 160 from Rs 220 apiece.

  • Fails to surprise positively in otherwise seasonally strong quarter.

  • Had expectations of incremental signals treading a path towards normalisation but disappointed due to low disbursements and stress pool remaining elevated.

  • Collection efficiency improving but customer doesn’t seem to clear full overdues.

  • Restructuring not encouraged much but vulnerable segments flowing into stress pool.

Also read: M&M Financial - Fails To Surprise Positively In (Otherwise) Seasonally Strong Quarter: ICICI Securities

Motilal Oswal

  • Maintains ‘buy’ rating, but cuts target price to Rs 215 apiece.

  • M&M Financial has not yet been able to ramp up disbursements to pre-Covid levels.

  • Has done a good job of increasing provisions on the balance sheet; hence, “we lower our FY22 credit cost estimate”.

Also read: M&M Financial Services Q4 Review - Strengthening The Balance Sheet: Motilal Oswal

Emkay Financial

  • Maintains ‘hold’ rating, hikes target price to Rs 158 from Rs 144 apiece.

  • Growth trend should remain challenging at least in the first half of the next fiscal considering the uncertainties regarding lockdowns and rising competition in tractors/CVs and car loan segments.

  • Well-placed to raise money from banks and capital markets but concerns remain over its asset-quality profile.

  • Remains cautious considering that the second wave of Covid could further hamper overall credit demand and collection mechanism.

Yes Securities

  • Maintains ‘buy’ rating with a target price of Rs 225 apiece.

  • Disappointed on further growth deceleration and higher provisioning.

  • Asset quality improvement was largely in line with expectation and seasonality.

  • Given growth challenges of recent quarters and a track record of inconsistent execution, one would prefer Cholamandalam Investment and Finance Co. and Shriram Transport Finance Ltd.

Nirmal Bang

  • Maintains ‘accumulate’ rating with a target price of Rs 203 apiece.

  • Entry into digital consumer lending is positive as M&M Financial has an advantage of a large customer base and huge data around its income levels and repayment track record.

  • Lost market share across segments with issues at M&M affecting utility vehicles and tractor disbursements.

  • Write-offs aided improvement in asset quality; collections improved.

Also read: M&M Financial Services Q4 Review - Near Term Outlook Warrants Caution: ICICI Direct

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