[T.S.R:16773] M&M Finance Gets A Downgrade-Cant Grow Your Book By 47% And Have Zero NPA's-Sell

M&M Finance-What If Value Compressed To 1X ABV from the present 2.5XABV; We could look at a Rs 250 stock

 

Mahindra & Mahindra Financial Services (MMFSL) result is lower than our estimate which is on account of RBI guidance to provide for 25bps on standard assets MMFSL provided Rs 285 mn on account of regulatory requirement. Apart from that the disbursement growth (22% YoY), NII grew (34% YoY) with 7 bps YoY compression in the spread, Substantial improvement in Asset Quality with GNPA  at 6.1% as compare to 10.1% in Q3FY10, Provision coverage remains high at 82%

Loan book grew by 47%YoY & 11%QoQ, resulted in healthy NII growth of 34%YoY. Disbursement has grown up by 22%YoY with maintain growth in Car and Tractor Vehicle but the highlight for the quarter is the disbursement growth of 57% YoY in high yielding used vehicle and other segments which lead to improve its proportion to 6% of total AUM as compare to 5% in Q3FY10.
 
Valuation: At CMP of 700, the stock is trading at P/ABVx of 2.7x and 2.2x of its FY11E and FY12E respectively. We still believe that the conservative provision policy, pan India presence, normal monsoon and rural centric business will lead to the growth momentum for the company and lead to better ROE. We believe that as the disbursement momentum for 9MFY11 (which generally a slack season for the company) will maintain which lead to higher advances growth and further the Rural housing business also saw some traction. Based on the assumption of sustainable ROE of 18-19% we believe that 2.5x (earlier assume at 2.8x) ABVPS represent to be the fair value.

 

 

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