M&M Financial Services (MMFS IN, mcap US$2.4bn, 3-mth ADV $6.1mn, BUY) - Ambit

Strong presence in rural financing puts it is a frontrunner for banking licenses given the RBI's stated objective of financial inclusion as a primary goal for issuing new banking licenses. A strong parentage and good corporate governance record would further boost its chances.

A diversified product mix, increasing market share in some products, a liability sensitive balance sheet and increased profitability contribution from subsidiary companies mean that MMFS is well positioned to deliver a consolidated EPS CAGR of 24% over FY13-15 despite factoring in ~90% increase in provisioning costs in FY14 vs FY13 (assuming 90-day NPA recognition norms and NPAs increasing from its cyclical low levels).

We are BUYers with a target price of Rs251 (implying FY14 P/E of 13.1x and implied FY14 P/B of 2.6x), because we believe that the company's consistent earnings growth delivery should lead to a rerating of the stock from 2.7x FY14E P/B towards that of some of the private sector banks which are trading at 3.0x-4.0x FY14 P/B.

Source : Equity Bulls

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