Target: ₹350
CMP: ₹317.45
Mahindra Finance reported 39 per cent growth in core earnings, 9 per cent above estimates. AUM was up 12 per cent year on year on the back of 11 per cent growth in disbursements. Calculated NIM expanded 70 bps to 7.3 per cent, reflecting liability-side tailwinds; fees were up 44 per cent, reflecting focus on distribution/insurance income. Increase in provisions by 23 per cent led to 55 per cent growth in earnings, 8 per cent below estimates.
The West Asia war leading to fuel shortages, higher prices along with deficit in monsoon arguably make FY27E a challenging year for Mahindra Finance. The company has been able to beat margins for two consecutive quarters; focus on fees is improving profitability.
It reported 12 per cent loan growth in FY26, with 6 per cent growth in disbursements. While tractor disbursements have been strong, the company has scaled up in PV (up 15 per cent in Q4) and pre-owned (17 per cent in Q4) vehicles. The management has guided to maintain growth in teens/mid-teen levels, depending on comfort on macro trends.
We are raising our estimates by 4-12.5 per cent, reflecting a marginally-higher loan growth, better margins and lower provision (following extra provisions made this year). While macro challenges overcast, the company seems to be better-placed this time. Valuations at 1.4X book and 10.4X earnings FY28E are inexpensive; upgrade to Buy with rollover of an RGM-based FV to ₹350 (from ₹340).