Mahindra Finance shares at Rs 240 or Rs 370? What analysts say post Q4 update

The March quarter business update by Mahindra & Mahindra Financial Services Ltd (Mahindra Finance) suggested the disbursement growth moderated further for the NBFC, even as asset growth remained healthy. For the fourth quarter, Mahindra Finance’s disbursements came in at Rs 15,300 crore, up 11 per cent YoY. March, disbursement growth stood at 9 per cent against 13 per cent in February and 10 per cent in January. Disbursement growth had stood at a strong 46 per cent YoY in the March 2023 quarter, 53 per cent in February 2023 quarter and 72 per cent YoY in January 203 quarter.

Gross non-performing asset (NPA) or gross stage 3 assets for Mahindra Finance has been consistently improving since the last seven quarter and was at 3.3 per cent in Q4FY24. This was the lowest level since FY13, analysts noted. But they stayed mixed on the stock's prospects amid different views over credit cost and stock valuations.

Following the Q4 update, Nomura India maintained its 'Reduce' rating on the Mahindra Finance stock, citing higher share of AUM (54 per cent of AUM) falling into highly competitive segments like auto/cars, leading to potentially negative impact on yields.

It said M&M Finance's credit cost is likely to stay elevated due to the captive nature of the business and total ECL provision being at a multi-year low of 3.8 per cent. The average credit cost as percentage of assets) was 2 per cent in 9M24 and it needs to be 0.9 per cent in 4Q24 to achieve the upper limit of credit cost guidance of 1.5-1.7 per cent in FY24.

Besides, it said Mahindra Finance has underwhelming profitability on a structural basis with five and 10-year RoE being at 9 per cent and 11 per cent, respectively, the lowest among its peers. Nomura also raised concerns over expensive valuation and suggested a target of Rs 240, valuing MMFS at 1.4 timesFY26F BVPS.

"MMFS is one of our high-conviction stock ideas due to its attractive risk-reward & improving return ratios. We retain our high-conviction ADD rating on MMFS with a target price of Rs370, as we have valued the standalone entity at 2.2 times FY25F BV and added Rs20 per share for its subsidiaries," said InCred Equities.

Motilal Oswal Securities maintained its Buy rating on the stock.