Mahindra Finance Asset Quality Improves, Disbursement Growth Moderates: Brokerages

Mahindra & Mahindra Financial Services Ltd.'s disbursement growth has moderated, and the business-asset gains remained healthy, according to brokerages.

The non-banking financial company, which operates as Mahindra Finance, reported disbursements of Rs 6,100 crore in March, a tepid growth of 9% year-on-year, they said.

"While we do see (a) seasonal rise in write-offs in (the) fourth quarter, we now believe that Mahindra and Mahindra Financial Services can deliver a credit cost of 1.63% in FY24," BofA Securities said a note on Wednesday.

Disbursements at the fourth quarter of financial year 2024 stood at Rs 15,300 crore, an 11% year-on-year growth but a decline of 1% quarter-on-quarter. Disbursements in the last fiscal grew 13% to Rs 56,200 crore, according to Nomura Research.

Despite a moderation in year-on-year disbursement growth, business-asset growth remained healthy at 24% year-on-year in March as repayment rate came down sequentially. In the fourth quarter, asset growth was 6% sequentially vs 4% in the third quarter, Nomura said.

• Healthy disbursement trends in the last fiscal have led to business assets at around Rs 1.02 lakh crore as of March 31, a growth of 24% over March 31, 2023, and approximately 6% over Dec. 31, 2023, according to an exchange filing on Tuesday.

• The fourth-quarter disbursements at around Rs 15,300 crore registered a growth of 11% year-on-year. The disbursements of approximately Rs 56,200 crore in the last fiscal is a growth of 13% year-on-year.

• Nomura maintains a 'reduce' rating on the stock with a target price of Rs 240 apiece.

• Disbursement growth moderates further, business asset growth remained healthy.

• A higher share of assets under management falling into the highly competitive segments like auto/cars, leading to potentially negative impact on yields.

• Underwhelming profitability on a structural basis, with a five-year and 10-year return on equity being 9% and 11% respectively, the lowest among its peers. Even in the first nine months of fiscal 2024, the average RoE stood at 9%.

• Expensive valuation, given the growth and profitability profile of the company.

• Nomura prefers Shriram Finance Ltd. over Mahindra Finance in the auto NBFCs space.

• Citi maintains a 'neutral' rating on the stock with a target price of Rs 315 apiece.

• The net interest margins had a benefit of unwinding of dealer advances and higher other incomes in the third quarter and should normalise in the fourth quarter.

• Given Mahindra Finance investing in tech, branches and people, cost ratios will remain elevated.

• The research firm maintains a 'buy' rating on the stock with a target price of Rs 360 apiece.

• The disbursement growth moderated but in line.

• The strong delivery in asset-quality improvement in fiscal 2024 is backed by multiple actions — improving customer mix and cutting vulnerable customer cohorts, product diversification, better use of bureau data that reinforces confidence in its ability to keep credit cost lower versus historical average, which remains a critical lever for delivering on a 2.5% return-on-asset target.

Shares of the company fell as much as 1.32% during the day to Rs 292.15 apiece on the NSE. It was trading at 0.46% lower at Rs 294.15 per share, compared with a flat benchmark Nifty 50 as of 12:06 p.m.