Motilal Oswal sees 20% upside for Mahindra Finance on credible transformation attempt

With an eye on the approaching Indian Lok Sabha elections in 2024, Motilal Oswal anticipates a favorable growth trajectory for Mahindra Finance, consistent with the historical trend of stronger assets under management (AUM) growth during pre-election fiscal years

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Mahindra & Mahindra Financial Services, that has seen historical operational volatility and asset quality challenges, is now at a crossroads with transformative strategies on its horizon, believes domestic broking firm Motilal Oswal.

Under Mission 2025, the non-bank financial company is aiming at market expansion and streamlining operations through technology, innovative product development, and process enhancements.

Motilal Oswal in a reported dated August 30 underscores that the company’s investment in cutting-edge technology holds the promise of neutralising past operational fluctuations.

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“In the last fiscal year, MMFS strengthened its leadership position in the
tractor, Mahindra Auto, and non-Mahindra financing segments with
improvement in market shares,” the domestic broking firm noted.

“The company is also increasing its penetration in the used vehicle segment. We believe that this transformation is only half-complete,” it added.

On back of this change in mix, the NBFC’s net interest margins will stabilise within the next few quarters. In Fy23, the company reported NIM of 8.3 percent.

With an eye on the approaching Indian Lok Sabha elections in 2024, Motilal Oswal anticipates a favorable growth trajectory for Mahindra Finance, consistent with the historical trend of stronger assets under management (AUM) growth during pre-election fiscal years.

Optimistic outlook

“Strong moats in the rural/semi-urban customer segments position MMFS well to reap the rewards of the hard work that is going into evolving this franchise,” Motilal Oswal analysts noted.

On back of this, they expect Mahindra Finance’s assets under management to compound at 19 percent and profit after tax at 20 percent over FY23 to FY25. This optimistic outlook is accompanied by projected returns on assets (RoA) and returns on equity (RoE) of 2.3 percent and 15.4 percent respectively, by FY25.

They have a “BUY” rating on the MMFS stock with a target price of Rs 350, valuing it at 2.2x FY25 estimated price-to-book value (P/BV).

At 12 pm, the stock was quoting at Rs 297.55 on the NSE, higher by 1.5 percent from previous close.

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