Mahindra and Mahindra Financial Services - Stress in asset quality coming to fore - Emkay

Reco: HOLD
CMP: Rs 241
Target Price: Rs 216

- MMFS' Q1FY14 results below estimates with NII at Rs6.2bn (vs. Rs6.4bn consensus) and PAT at Rs1.9bn (vs. Rs2.2bn consensus). Gross spreads contract by 60bps yoy to 9.7%

- Seasonal NPAs increase higher than history with 50/94% qoq increase in GNPA/ NNPA led by UVs, car & CV segment. Provision cover declines to 56% from 70% in Q1FY14

- Strong asset growth 10% qoq in Q4FY13 despite 4%qoq decline in VoAF* implies higher blended LTV. Change in mix towards Cars and used CV may be the reason for the same

- Cut earnings by 7-8% for FY14/15 to factor in higher credit cost and margin compression. Valuations fair at 2.8/2.4x FY14E/15E ABV. Retain HOLD with TP of Rs216

Source : Equity Bulls

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