Motilal Oswal Sees Upside Potential in Mahindra and Mahindra Financial
Mahindra & Mahindra Financial Posts Strong Q4 Earnings
Mahindra & Mahindra Financial Services (MMFS) has reported a significant increase in its earnings for the fourth quarter (4QFY26) and the full fiscal year (FY26). The company's profit after tax (PAT) rose by approximately 55% year-over-year (YoY) and 8% quarter-over-quarter (QoQ) to ₹8.7 billion, which is in line with expectations.
The company's net interest income (NII) stood at ₹23.9 billion, up approximately 24% YoY. Other income also saw a substantial increase of approximately 53% YoY to ₹3.5 billion, driven by healthy fee income and dividend income of ₹309 million received from MIBL. On the other hand, operating expenses (Opex) stood at ₹10.2 billion, up approximately 8% YoY. The cost-income ratio improved to approximately 37.2%, down from 42.1% in the previous quarter and 43.7% in the same period last year, primarily due to a sequential decline in employee expenses. The one-time expenses related to the implementation of the labor code in the third quarter contributed to this decline.
Profitability and Performance
In terms of profitability, MMFS posted a profit before provisions and taxes (PPoP) of approximately ₹17.2 billion, which is a 6% beat over expectations and up approximately 42% YoY. For the full fiscal year, PPoP grew approximately 31% YoY to ₹62.3 billion.
Outlook and Valuation
MMFS currently trades at 1.5x its projected price-to-book value (P/BV) for fiscal year 2027 (FY27E). With a projected PAT compound annual growth rate (CAGR) of approximately 19% over FY26-FY28E and return on assets (RoA) and return on equity (RoE) of 2.2% and 14%, respectively, in FY28E, we reiterate our BUY rating with an unchanged target price of ₹350, based on 1.6x March 2028 estimated book value (BV).
| Metric | 4QFY26 | 3QFY26 | 4QFY25 |
|---|---|---|---|
| PAT (₹ billion) | 8.7 | 8.1 | 5.6 |
| NII (₹ billion) | 23.9 | 19.4 | 19.3 |
| Other Income (₹ billion) | 3.5 | 2.3 | 2.3 |
| Opex (₹ billion) | 10.2 | 9.4 | 9.4 |
| Cost-Income Ratio | 37.2% | 42.1% | 43.7% |
| PPoP (₹ billion) | 17.2 | 16.1 | 12.1 |
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Investor Takeaway
Investors should consider buying Mahindra and Mahindra Financial due to its upside potential.
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