Mahindra Finance rallies on asset quality improvement, higher disbursement

Shares of Mahindra & Mahindra Financial Services surged 10 percent on October 4 after the company reported disbursements of approximately Rs 4,080 crore in September. This translates to an on-year growth of 82 percent in the second quarter and 106 percent in the first half of FY23.

At 10:15 am, the scrip was quoting Rs 197 apiece on the National Stock Exchange. It was the top gainer on the BSE Midcap index.

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“Healthy disbursement trends during the first half have led to a strong gross asset book of approximately Rs 73,900 crore, growing 3 percent month-on-month,” the company said in an exchange filing.

Collection efficiency was at 98 percent for September as against 96 percent a month before. “Asset quality further improved during the month and the quarter. As on September 30, the company expects its Gross Stage 3 to be around 7 percent (compared to 8 percent as of June 30) and Gross Stage 2 to be around 10 percent (compared to 11.7 percent as of June 30),” it said.

All these numbers were ahead of the global Morgan Stanley estimates. The firm has an ‘overweight’ call on the stock with a target price of Rs 225 per share. “Disbursements and collections remained strong in September, aided by macro tailwinds. Both AUM and asset quality were better than our estimates,” it said.

However, a key overhang on the stock is RBI’s ban on the lender from hiring third-party entities for repossession of loan assets for recovery. The move followed an unfortunate incident involving the death of a borrower’s kin while recovery agents were reportedly repossessing a tractor financed by the company.

Also Read: Hazaribagh incident: Did Mahindra Finance follow RBI directives on recovery agents?

The stock has tumbled 9 percent in the past month. Analysts believe there will be significant increase in stress in the coming quarters. “On an annualised basis, 36-48k contracts could see delayed repossession due to the ban. A 5 percent higher loan loss on these assets could impact credit costs by 10-15 bps (annualised) per our back-of-the-envelope calculations,” Jefferies said.