Mahindra and Mahindra Financial Services Target Price Raised to Rs 325 by Prabhudas Lilladher

Mahindra and Mahindra Financial Services Sees Improved Disbursement Growth and Asset Quality Trends

Mahindra and Mahindra Financial Services (MMFS) reported a 12% year-over-year (YoY) growth in assets under management (AUM) to Rs1,341 billion in the fourth quarter (Q4). The company's Q4 disbursement growth picked up to 11% YoY, driven by growth in tractor, used commercial vehicle (CV), and passenger vehicle (PV) segments.

In its research report, Prabhudas Lilladher analysts expect MMFS to maintain stable margins in FY27, supported by a favorable mix and an increase in fee-based income. However, the company's operating expense (Opex) is expected to remain range-bound as it invests in business transformation and diversification. The analysts also noted an improvement in asset quality trends, but remain vigilant and have factored a credit cost of 1.7%/1.6% for FY27/FY28E.

Key Financial Metrics

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Prabhudas Lilladher analysts have revised their earnings estimates for MMFS downward by 6-7% for FY27 and FY28, factoring in a slowdown in growth and higher-than-anticipated cost of borrowing. The company's standalone business is valued at 1.3x FY28E price-to-book value (P/ABV), which translates to a target price (TP) of Rs 325 for the company.

Valuation and Recommendation

The analysts' summary of opinion valuation ascribes a value of Rs 309 to the standalone business and Rs 21 to subsidiaries, with a 25% holding company discount. This results in a TP of Rs 325, which is based on a disbursement run-rate that has picked up, but with asset quality remaining a monitorable factor. Prabhudas Lilladher maintains an ACCUMULATE rating for MMFS.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline