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M&M Financial Services
3QFY11 – Robust growth; lower price target, maintain Buy
We lower our FY11e/FY12e EPS 2-3% owing to: i) introduction of
standard asset-provisioning and ii) lower assumed dilution (8% at
`725 vs. 10% at `800). As MMFS’ FY12e/13e BV is lower by `18, we
decrease our target price to `950 from `1,005. Yet we maintain our
Buy as MMFS’ niche rural presence, strong parentage and diversified
branch network are likely to support +4% RoA over FY11-13e.
Adjusted profit up 52% yoy. MMFS’ 3QFY11 adjusted profit rose
52% yoy, led by strong NII (which grew 32% yoy) and better asset
quality. Provisions, as a percentage of average assets, were down
1.8% (including one-time standard asset provisions) vs. average of
3.2% in the past eight quarters.
Robust loan growth across segments. AUMs grew 39% yoy (and
10% qoq) to `134bn. Maintaining the past trend, auto/UVs, tractors
and cars accounted for over 80% of disbursements in 3QFY11. We
expect 30% CAGR in MMFS’ loans over FY10-13e.
Improvement in spreads. NII grew 32% yoy, backed by strong loan
growth (46% yoy) and 20bps improvement in gross spread, to 11.7%.
Sharp improvement in asset quality. Sequentially, gross and net
NPAs increased 5% and 10% to `7.1bn and `1.3bn respectively,
against 10% AUM growth in 3QFY11. Provisions/write-off as a
percentage of average assets sharply declined to 1.8% vs. average of
3.2% in the past eight quarters. The provision-coverage ratio was a
healthy 82%, with the net NPA ratio at 1.1%.
Valuation and risks. We lower our price target to `950 from `1,005
earlier. At our target price, the stock would trade at PBV of 3.2x FY12e
and 2.7x FY13e. Risks: Economic slowdown, regulatory changes.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
M&M Financial Services
3QFY11 – Robust growth; lower price target, maintain Buy
We lower our FY11e/FY12e EPS 2-3% owing to: i) introduction of
standard asset-provisioning and ii) lower assumed dilution (8% at
`725 vs. 10% at `800). As MMFS’ FY12e/13e BV is lower by `18, we
decrease our target price to `950 from `1,005. Yet we maintain our
Buy as MMFS’ niche rural presence, strong parentage and diversified
branch network are likely to support +4% RoA over FY11-13e.
Adjusted profit up 52% yoy. MMFS’ 3QFY11 adjusted profit rose
52% yoy, led by strong NII (which grew 32% yoy) and better asset
quality. Provisions, as a percentage of average assets, were down
1.8% (including one-time standard asset provisions) vs. average of
3.2% in the past eight quarters.
Robust loan growth across segments. AUMs grew 39% yoy (and
10% qoq) to `134bn. Maintaining the past trend, auto/UVs, tractors
and cars accounted for over 80% of disbursements in 3QFY11. We
expect 30% CAGR in MMFS’ loans over FY10-13e.
Improvement in spreads. NII grew 32% yoy, backed by strong loan
growth (46% yoy) and 20bps improvement in gross spread, to 11.7%.
Sharp improvement in asset quality. Sequentially, gross and net
NPAs increased 5% and 10% to `7.1bn and `1.3bn respectively,
against 10% AUM growth in 3QFY11. Provisions/write-off as a
percentage of average assets sharply declined to 1.8% vs. average of
3.2% in the past eight quarters. The provision-coverage ratio was a
healthy 82%, with the net NPA ratio at 1.1%.
Valuation and risks. We lower our price target to `950 from `1,005
earlier. At our target price, the stock would trade at PBV of 3.2x FY12e
and 2.7x FY13e. Risks: Economic slowdown, regulatory changes.
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