Mahindra Finance - Strong parentage, diversified product - Anand Rathi

- Diversified loan mix and a diversified customer segment to help drive 23% loan growth over the next two years

- Customer profile changing; less dependent on agri-income

- A well-recognized brand in rural and semi-rural areas, along with strong support from the parent to help sustain its high NIM above 9.5%

- Productivity improvement to continue, with cost-assets to slip to 3.2% by FY15, from 3.4% at present

- Asset quality slips, with GNPA increasing to 4.8% of NPAs. However, Q4 FY14 is likely to result in greater recoveries on a seasonally good quarter when rural cash flows are highest.

- High capital adequacy of 18.6% (tier-1: 15.7 %) provides impetus against further delinquencies.

- We expect the company's niche rural presence, strong parentage and diversified product mix to support a 3.2%+ RoA over FY15/16.. At our price target of Rs. 291, it would trade at 2.8x FY15e and 2.4x FY16e PBV. Our valuation is based on the two-stage DDM (CoE: 15%; beta: 1.1; Rf: 8%) Risks. More than- expected credit growth and delinquencies.

Source : Equity Bulls

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