Mahindra Finance, MGL, BPCL, Petronet LNG, Nippon AMC: What CLSA says on these 5 shares

Foreign brokerage CLSA has come out with updates on a couple of stocks namely Mahindra & Mahindra Financial Services Ltd (M&M Finance), Mahanagar Gas Ltd (MGL), Nippon Life India Asset Management Ltd (Nippon India AMC), Bharat Petroleum Corporation Ltd (BPCL) and Petronet LNG Ltd. The brokerage has changed its target prices on Mahindra Finance, Nippon India AMC and BPCL, it changed its earnings estimates for MGL while it retained its target price for Petronet LNG.

On Mahindra Finance, CLSA said Q2 was the second straight quarter of poor results, as pre-provision operating profit (PPOP) was 8 per cent below its estimates and higher credit costs led to 50 per cent profit miss. It, however, believes the management is making underwriting changes for the better, and hence have not downgraded the stock despite two poor quarters.

"Also, in the near term, strong festive demand and seasonal improvement in asset quality will be upside triggers for the stock," it said while suggesting a target of Rs 330 on the counter.

The brokerage has reduced its profit estimates for Mahindra Finance to 14-23 per cent, driven primarily by net interest margin (NIM) cuts. CLSA has also lowered its residual income-derived target from Rs 360 to Rs 330.

Mahanagar Gas' Q2 earnings were also 15 per cent below CLSA’s estimates due to a miss in unit Ebitda margin, even as volumes growth was in line at 3.4 per cent YoY. This, CLSA said, still means that H1 profits have doubled YoY and "this makes us take up FY24-25CL EPS by 9-20 per cent on the back of higher margins. However, we keep our target unchanged as we cut PE multiple from 13 times to 12 times. In the call, management explained policy in Mumbai is unlikely to be influenced by Delhi’s recent EV policy. MGL also highlighted aggressive promotion to attract CVs under the CNG-fold and boost long-term volumes. Retain BUY on MGL’s undemanding valuations," CLSA said.

On Nippon India AMC, CLSA upped its FY24 asset under management growth estimate to 28 per cent while keeping its FY25-26 estimates unchanged. Given the strong momentum of new flows, CLSA said there has been some pressure on equity yields, though overall yields were flat sequentially.

"Supported by higher MTM gains (other income) in 1H, we raise our FY24CL net profit estimate by 14 per cent and FY25-26CL by 8-10 per cent. We roll forward to September 2025 and raise our target from Rs 340 to Rs 395," it said.

CLSA said a strong H1 performance has made it increase FY25 earnings estimates for BPCL by 15 per cent but its aggressive $18 billion capex plan over the next five years could be seen as an overhang on the stock.

"We thus remove the premium we assigned to its multiple versus peers, and we cut its EV/Ebitda multiple from 5.8 times to 5.5 times. This reduces our target from Rs 480 to Rs 420, but with 21 per cent upside, we maintain BUY on an attractive valuation. Any cool-off in crude price and hopes on higher marketing margins post 2024 elections would be positive catalysts," it said.

Meanwhile, Petronet LNG's earnings beat estimates but CLSA said large petchem project is seen as a de-rating worry.

"PLNG’s board approved a large $2.5 billion petchem plant near Dahej terminal with a FY28 target for completion. This announcement drove a sharp fall in the stock, but management suggested that part of this project may be a tolling style model plus it exuded confidence of very high IRRs. PLNG’s management has promised a detailed explanation on project economics in the coming days and we will wait for this before making any adjustments to our estimates and target price," it said. CLSA has a target of Rs 270 on the stock.

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