In the aftermath of Mahindra & Mahindra Financial Services Ltd’s (Mahindra Finance) fourth-quarter business update, analysts have provided contrasting perspectives on the stock’s future trajectory, citing various factors influencing its performance.
Nomura India, for instance, has upheld its ‘Reduce’ rating on Mahindra Finance stock, primarily due to concerns regarding the significant portion of its Assets Under Management (AUM) allocated to fiercely competitive segments like auto and cars, potentially leading to adverse impacts on yields.
According to the March quarter update, Mahindra Finance witnessed a moderation in disbursement growth, despite maintaining a healthy asset growth trajectory. Disbursements for Q4 stood at Rs 15,300 crore, reflecting an 11 percent year-on-year increase. However, the growth rate dwindled to 9 percent in March, compared to 13 percent in February and 10 percent in January. Notably, the company had experienced robust disbursement growth rates of 46 percent YoY in the March 2023 quarter, 53 percent in the February 2023 quarter, and 72 percent YoY in January 2023.
On the asset quality front, Mahindra Finance has shown consistent improvement, with gross non-performing assets (NPAs) or gross stage 3 assets reaching 3.3 percent in Q4FY24, marking the lowest level since FY13. Despite these positive trends, analysts remain divided on the stock’s future trajectory, citing differing views on credit costs and valuations.
Nomura India underscores that Mahindra Finance’s credit costs are likely to remain elevated, given the captive nature of its business and the total Expected Credit Loss (ECL) provision hitting a multi-year low of 3.8 percent. Moreover, concerns persist over the company’s structural profitability, with five and ten-year Return on Equity (RoE) figures standing at 9 percent and 11 percent, respectively, the lowest among its peers. Nomura has set a target price of Rs 240 for Mahindra Finance, valuing it at 1.4 times FY26F BVPS.
Contrarily, InCred Equities remains optimistic about Mahindra Finance’s risk-reward profile and improving return ratios. They have retained a high-conviction ‘ADD’ rating on the stock, setting a target price of Rs 370. InCred Equities values the standalone entity at 2.2 times FY25F BV and adds Rs 20 per share for its subsidiaries.
As the market awaits further developments, investors are advised to carefully consider these divergent viewpoints while making investment decisions in Mahindra Finance. Stay tuned for more updates on this evolving situation.
Source:Internet