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Research
Retain Add on Mahindra & Mahindra Financial - Earnings beat, but will the trend hold? - BRICS
Posted On : 2012-04-26 21:08:53( TIMEZONE : IST )
Mahindra & Mahindra Financial Services Limited beat our consensus (which was in line with consensus) on 3 counts - NIM (50 bps ahead of estimate), value of asset financed (9% ahead) and lower provisions (56% below) - all indications of a buoyant rural growth story. However, tractor sales are probably entering a cyclical downturn and pending few more quarters of such earnings beat and/or improvement in banking sector agri-NPA profile, we stick to the view of a potential slowdown in rural wealth generation and its negative impact on associated businesses. Still, Q4 results and falling funding cost accrue some margin improvement in the near term. Tweak estimates and raise target price to Rs.740. Retain add.
Q4 earnings beat expectations. PAT was up 45% (26% ahead of estimate) driven by net interest revenue (up 32%, 13% ahead) and lower provisions (56% below). NIM improved 10 bps qoq (50 bps ahead) while credit cost was 33 bps vs expected 74 bps. Value of assets financed was up 35% while loan book was up 40%. Tier-1 was strong at 15%. Gross and net NPAS were 3.09% and 0.7% respectively.
Subsidiaries chip-in consolidated income growth. MIBL (insurance broking) reported 41% PAT growth driven by 47% jump in net premium received. Importantly, numbers reflect that business has improved after IRDA regulations curtailed agency-based premium collections. MRHFL's (rural housing) PAT was up 86% driven by 27% growth in disbursal and 70% growth in loan book. FY12 consolidated PAT was up 31%.
Raise Estimates. Increase NIM by 30 bps for FY13 and FY14, reduce value of asset financed growth to 22% for FY13-14 from current high levels and raise credit cost to 140 bps vs. 110 bps in FY 12. Up EPS estimates by 3.7% and 1.8% to Rs.68.3 and Rs.85.3 for FY 13 and FY 14.
Valuation: The stock trades at a not-so-cheap 1.9x and 9.7x standalone book and earnings. We value the stock at Rs.740 (2.2x standalone book, 10.8x standard earnings, 9.2x consolidated earnings) against Rs.730 earlier.
