Mahindra Finance drops 4% after Q2 business update; brokerages divided on near-term outlook

The disbursements in the second quarter of the current fiscal came in at Rs 13,300 crore, translating to a 12.6 percent YoY growth.

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Shares of Mahindra & Mahindra Financial Services dropped around 4 percent in morning trade on October 4 after the company reported a healthy growth in disbursements in the second quarter of this fiscal even as gross slippages inched up sequentially.

At 10.40 am, shares of the company were trading 3.69 percent down at Rs 289.95 on the BSE.

In its Q2 business update, Mahindra Group’s non-banking financial firm said it disbursed Rs 4,500 crore in September, recording an 11 percent year-on-year growth.

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The disbursements in the second quarter of the current fiscal came in at Rs 13,300 crore, translating to a 12.6 percent YoY growth, it said in an exchange filing on October 3.

“For H1 FY2024, the disbursement of approximately Rs 25,500 crores result in growth of 20 percent on a Y-o-Y basis,” it added.

Healthy disbursement trends during Q2 together with pre-festival dealer advance have led to business assets at around Rs 93,600 crore, a growth of 13 percent over March 2023 and 8 percent over June 2023, it said.

The collection efficiency (CE) was at 97 percent for September 2023, a marginal improvement over 96 percent achieved in August 2023. September 2022 recorded a CE of 98 percent.

However, stage-3 assets ratio inched up to 4.4 percent from 4.3 percent as at June 2023, while stage-2 declined to 5.8 percent from 6.4 percent as at June 2023.

Gross stage-3 assets are loans which have been overdue for more than 90 days, while stage-2 are loans overdue for 31-89 days.

“The Company continued to enjoy a comfortable liquidity position on its Balance Sheet, with a liquidity chest of over 2.5 months,” Mahindra Finance added.

Brokerage Views

Global brokerage firm Jefferies said for Q2 FY24, Mahindra Finance’s AUM grew 27 percent YoY (8 percent QoQ) to Rs936 billion, a tad better than its estimate, partly aided by pre-festival dealer advances.

It added that the risk/reward seems balanced given 13-14 percent ROE outlook over FY24-26. It has a ‘hold’ rating on the stock.

Similarly, Morgan Stanley has an ‘equalweight’ rating, with target price at Rs 300, which represents a potential upside of around 3 percent from its current levels.

It added that the increase in gross stage-3 ratio to 4.4 percent likely implied a meaningful rise.

There was a meaningful rise in net slippages QoQ, Morgan Stanley said, adding that it is taking a modest write-off assumption

One possible factor could be deficient rainfall in certain parts of the country, it added.

However, Citi has a ‘buy’ rating on Mahindra Finance, with target price at Rs 355.

It expects the company to report over 15 percent net interest income (NII) YoY growth as well as more than 18 percent operating profit growth.

“Credit normalization should still support RoA/RoE profile of 1.5 percent/9 percent,” it added.

Shares of Mahindra Finance are up 20 percent on YTD basis, while the 1-year return stands at 44 percent.

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