Centrum Broking

M&M Financial (Hold)

CMP: ₹200

Target: ₹220

Mahindra & Mahindra Financial Services is one of India’s leading Rural NBFC headquartered in Mumbai It is amongst the top tractor financer in the country and offers a wide range of financial products to address varied customer requirements.

We retain ‘Hold’ on M&M Financial with a revised target price of ₹220. The revision in our TP follows 28 per cent/12 per cent cut in our profit estimates for FY16E/17E due to elevated credit cost, given the slow pace of asset recovery, and reduction in target multiple owing to lower return ratios over FY16-18E. We, however, draw comfort in growth; evident from Q3 of FY16 results wherein AUM/ disbursement grew 10 per cent y-y-y each and our surveys that suggest momentum to accelerate for certain segments over FY17-18E. Valuations at 2.4x FY17E ABV in the context of modest earnings growth in the near-term limit upside. Prefer Sundaram Finance in the asset financing space.

Key downside risk is failure on the recovery front or lower-than-expected pick-up in industry volumes.