The share price of Mahindra and Mahindra Financial Services has been volatile in recent sessions. However, it’s still around 12 percent in November so far after seeing a strong selloff of nearly 19 percent in October.
Since the end of November 21, the stock is up 17 percent this year against an 8 percent gain in the equity benchmark Sensex.
The stock’s poor showing in October could be attributed to the company’s underwhelming Q2 earnings.
The company reported a 48 percent drop in its standalone net profit to ₹235 crore in Q2FY24, led by supply reversals. In comparison, during the same period last year, the company reported a PAT of ₹448 crore, and in the previous June quarter (Q1FY24), the PAT stood at ₹362 crores.
The company’s net interest income reached ₹1,674 crore, marking a 9 percent YoY growth in Q2FY24, while it reported a PPoP (pre-provision operating profit) of ₹942.8 crore, reflecting a 9.2 percent growth YoY. During the quarter, yield moderated by 35 basis points QoQ, while CoF jumped 10 basis points, leading to a NIM contraction of 45 basis points QoQ.
We compared the views of several experts and brokerage firms to understand what investors should do with the stock. Here’s what they said:
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Fundamental views
Nirmal Bang Institutional Equities
Nirmal Bang has an “accumulate” call on the stock with a target price of ₹300 after it hosted the management of Mahindra and Mahindra Financial Services at its Annual Investor Conference.
“Keep ‘accumulating’ on Mahindra Finance and value the standalone business at ₹283 (1.7 times seven 2025 ABV) and affiliates at ₹17, after a 25 percent holding discount, to arrive at our target price of ₹300,” said Nirmal Bang.
Nirmal Bang indicated the following key takeaways from the meeting:
(1) While the festive season demand was decent, Mahindra and Mahindra Financial Services emphasized that it was lower than expected, resulting in high inventory at dealerships. It expects incremental growth to be driven by the used vehicle and LAP portfolio.
(2) While the cost of finance is likely to rise due to the new norms, Nirmal Bang expects the net interest margins (NIM) to see an increase in subsequent quarters as the company raises rates and increases the share of pre-owned vehicles in its portfolio.
(3) Credit costs of 1.5-1.7 percent seem likely for FY24 if current asset quality is maintained. The trends in collecting efficiency look healthy, despite a slowdown in the tractor portfolio.
Jignesh Shial, Director – Research; Head of BFSI Sector at InCred Capital
InCred Capital has an ‘add’ rating on the stock with a target price of ₹370 on 2.1 times FY25 BV.
“We do acknowledge that the margin miss during Q2 was a negative surprise, however we assume this is cyclical and we remain optimistic about a gradual improvement in margins (from Q4FY24F) supported by yield repricing as well as a consistent increase in more good. produce products,” said Shial.
The company is neither facing any specific quality issue nor witnessing a slowdown in growth. The current margin issue is more of an industry-led concern and would be sorted out over a period.
“Our on-the-ground controls are reiterating company improvement practices (which was previously a key concern) along with strict collection processes that will provide much-needed stability to revenues,” Shial said.
“Our channel audits indicate various changes made by the management in operational processes and policies of the company adhering to a balanced authority accountability mechanism for ground level employees with optimal operating leverage. This has strengthened our confidence in the company and its ability to deliver. on expected lines,” Shial said.
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Technical points of view
Pravesh Gour, Senior Technical Analyst at Swastika Investmart
The shares of Mahindra and Mahindra Financial Services witnessed a breakout of inverse head and shoulder formation on the monthly chart. After that, a massive rally was given to ₹346 and made an all-time high. It retried its previous cleavages all around ₹235 and started a new stage of rally towards ₹300
On the higher side, 200-DMA will act as a psychological resistance level all around ₹280; above this, we can expect a big move to above ₹314 in the shorter time frame. On the downside, ₹260 is the immediate support, while ₹235 will be the next major support during any correction, the analyst said.
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Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers
Patel observed that after registering the low of approximately ₹235, this counter gave a technical rebound and placed near the ₹275 mark. In the current juncture, it is hovering above 200 DEMA, but on the indicator front, the daily DMIs are involved, which suggests a sideways movement.
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“If already purchased, reserve some partial profit between ₹273-278 and wait and see. As we move forward, ₹280 will be stiff resistance, and support awaits nearby ₹270. On the reverse, if it closes at the top ₹280 daily, then fresh longings can be added for the purpose of ₹310,” Patel said.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and second-hand companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Updated: 22 Nov 2023, 13:15 IST