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Systematix Research Report
Mahindra and Mahindra Financial Services Ltd. reported significant miss in earnings (Rs 2.4 billion versus estimate of Rs 4.3 billion) due to 44 basis points QoQ compression in net interest margins to 7.0% and increase in credit cost to 2.8% (2.5% in Q2).
While assets under management growth remains healthy at 8% QoQ (27% YoY), disbursements growth was moderate at 12.6% YoY. Adjusted for dealer finance of Rs 50 billion (versus Rs 30-35 billion in Q2 FY23), disbursement growth would have been flat YoY.
Management lowered its assets under management growth guidance to 20% from 26% earlier. While stressed assets pool (Stage-II plus Stage-III) improved to 10% (versus 10.7% in Q1), credit cost was higher at 2.8% (versus 2.5% in Q1), as forward flow from stage-II to stage-III led to Rs 1.2 billion of additional provisioning requirement.
Management expects the majority of this additional provisioning to get reversed in H2 as monsoon has been good.
We have reduced our earnings estimates by 14%/8% for FY24/25 to factor in lower growth/net interest margins and higher credit cost.
We maintain our 'Hold' rating, with a revised target price of Rs 260 (Rs 280 earlier), based on 1.65 times FY25E book .
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