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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RECOMMENDATION: BUY
TARGET PRICE: RS.883
FY12E: P/E: 12.0X; P/ABV: 2.5X
q Strong momentum in business growth for MMFSL continued during
Q3FY11 - loan book grew 45.6% YoY and 11.5% QoQ. This has been
driven by good monsoon, higher allocation to government programs like
NAREGA etc and enhancement in the minimum support prices (MSP) of
various crops to rural India where MMFSL has a strong presence (~80%
branches).
q Strong core earning growth continued during Q3FY11 also (NII grew
31.5% YoY); an exceptional item of Rs.2.85 bn provision to meet RBI's
stipulation of 0.25% standard asset provisioning for NBFCs dampened
the bottom-line. If excluded, it would have grown to Rs.1.44 bn (growth
of 54.8% YoY).
q MMFSL also witnessed sharp rise in interest expense (19.4% QoQ) during
Q3FY11 on back of steep increase in CPs as well as bank borrowings.
However, it saw 20 bps sequential improvement in gross spreads during
Q3FY11 mainly driven by 100 bps hike in lending rates during Q3FY11
along with well managed asset-liability profile.
q Asset quality for the quarter remained fairly stable - gross NPA and net
NPA improved to 5.6% and 1.1%, respectively, at the end of Q3FY11. Provision coverage stood healthy at 81.6% at the end of Q3FY11, providing
cushion to the earnings in the future from some negative surprises on
asset quality.
q Revival in advances growth coupled with firm net margins augurs well
for the company, and thus we are slightly tweaking our earning estimates for FY11E and FY12E. We are also upgrading the stock to BUY
from ACCUMULATE earlier with the revised TP of Rs.883 (Rs.740 earlier)
based on 3.0x its FY12 ABV.
Strong business growth; loan book composition changes
Strong momentum in business growth for M&M Financial services continued during
Q3FY11. Its loan book grew 45.6% YoY and 11.5% QoQ to Rs.114.8 bn during
Q3FY11. Disbursement was strong during Q3FY11 with 78.6% YoY and 25.9%
growth.
At the end of Q3FY11, AUM stood at Rs.134.4 bn (up 39.3% YoY) with 30% exposure to auto/utility vehicles (M&M), 23% to tractors (M&M) and 33% to cars (including non M&M vehicles). Good monsoon, higher allocation to government programs
like NAREGA etc and enhancement in the minimum support prices (MSP) of various
crops resulted in improved cash flows to rural India and helped the M&M Financial
Services which has a strong presence (~80% branches) in rural areas,
In-line with the industry trend, share of cars (including non M&M vehicles) in the
lender's total AUM has increased from 28% at the end of Q3FY10 to 33% at the
end of Q3FY11. Auto/Utility Vehicles (M&M) financed as a % of total AUM stood at
30% at the end of Q3FY10, lower than 35% at the end of Q3FY10.
Strong core earning growth; higher provisions on account of standard asset provisioning dampened the bottom-line
During Q3FY11, MMFSL reported strong NII growth at 31.5% YoY to Rs.3.39 bn. Its
net Income grew 24.2% YoY to Rs.1.16 bn in Q3FY11 despite an exceptional item
of Rs.2.85 bn provision to meet RBI's stipulation of 0.25% standard asset provisioning for NBFCs. If excluded net Income would have grown to Rs.1.44 bn (growth of
54.8% YoY)
MMFSL also witnessed sharp rise in interest expense (19.4% QoQ) during Q3FY11
on back of steep increase in CPs as well as bank borrowings. The share of CPs in
total funding rose from 1.0% in Q3FY10 to 9.3% in Q3FY11. Similarly, the share of
bank loans in total funding rose from 40.0% in Q3FY11 to 46.4% in Q3FY11.
MMFSL saw 20 bps sequential improvement in gross spreads during Q3FY11 mainly
driven by 100 bps hike in lending rates during Q3FY11 along with well managed
asset-liability profile (avg duration of assets is ~28 months and that of liabilities is
~30 months). Management had guided that incremental cost of deposits was
~9.5% although the average cost of funds was 8.6% for 9MFY11.
They had further guided that with increased income in the hands of its target customers thanks to higher government allocation to rural development programs as
well as higher MSP for various crops, it would be easy for the company to pass on
the hike on cost side.
Steady asset quality; improved cash flows in rural India has
helped in past couple of quarters
Asset quality for the quarter remained fairly stable - in absolute terms, gross NPAs
rose marginally by 5.3% QoQ, while it was down 11.1% YoY. Similarly, net NPA
declined 34.7% YoY during Q3FDY11, while it rose by only 10.5% QoQ.
In percentage terms, gross NPA improved to 5.6% of total assets at the end of
Q3FY11 as compared to 5.8% at the end of Q2FY11 and 8.7% at the end of
Q3FY10. Similarly, net NPA as a percentage of total assets also declined to 1.1% at
the end of Q3FY11 as against 2.3% at the end of Q3FY10 and 1.1% at the end of
Q2FY11.
Improvement in asset quality during last couple of quarters has come on the back of
improving cash flows in rural India with rising government allocation to rural employment generation/development programs as well as rise in MSP of various crops.
Provision coverage stood healthy at 81.6% at the end of Q3FY11, providing cushion
to the earnings in the future from some negative surprises on asset quality.
We are of the view that - improved operating scenario, revival in agriculture growth
and more govt's focus on inclusive growth to help arrest incremental slippages and
will also aid better recoveries. Going forward, we opine that MMFSL's asset quality
will continue to improve.
Valuation and recommendations
Revival in advances growth coupled with firm net margins augurs well for the company, and thus we are slightly tweaking our earning estimates for FY11E and FY12E.
We now expect net profit to come at Rs.4.41 bn and Rs.5.96 bn for FY11E and
FY12E, respectively which would translate into EPS of Rs.43.2 and Rs.58.4, respectively. Similarly, adjusted book value (ABV) is forecasted at Rs.234.4 and 277.7 for
FY11E and FY12E, respectively.
We are upgrading the stock to BUY from ACCUMULATE earlier with the revised TP
of Rs.883 (Rs.740 earlier) based on 3.0x its FY12 ABV.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RECOMMENDATION: BUY
TARGET PRICE: RS.883
FY12E: P/E: 12.0X; P/ABV: 2.5X
q Strong momentum in business growth for MMFSL continued during
Q3FY11 - loan book grew 45.6% YoY and 11.5% QoQ. This has been
driven by good monsoon, higher allocation to government programs like
NAREGA etc and enhancement in the minimum support prices (MSP) of
various crops to rural India where MMFSL has a strong presence (~80%
branches).
q Strong core earning growth continued during Q3FY11 also (NII grew
31.5% YoY); an exceptional item of Rs.2.85 bn provision to meet RBI's
stipulation of 0.25% standard asset provisioning for NBFCs dampened
the bottom-line. If excluded, it would have grown to Rs.1.44 bn (growth
of 54.8% YoY).
q MMFSL also witnessed sharp rise in interest expense (19.4% QoQ) during
Q3FY11 on back of steep increase in CPs as well as bank borrowings.
However, it saw 20 bps sequential improvement in gross spreads during
Q3FY11 mainly driven by 100 bps hike in lending rates during Q3FY11
along with well managed asset-liability profile.
q Asset quality for the quarter remained fairly stable - gross NPA and net
NPA improved to 5.6% and 1.1%, respectively, at the end of Q3FY11. Provision coverage stood healthy at 81.6% at the end of Q3FY11, providing
cushion to the earnings in the future from some negative surprises on
asset quality.
q Revival in advances growth coupled with firm net margins augurs well
for the company, and thus we are slightly tweaking our earning estimates for FY11E and FY12E. We are also upgrading the stock to BUY
from ACCUMULATE earlier with the revised TP of Rs.883 (Rs.740 earlier)
based on 3.0x its FY12 ABV.
Strong business growth; loan book composition changes
Strong momentum in business growth for M&M Financial services continued during
Q3FY11. Its loan book grew 45.6% YoY and 11.5% QoQ to Rs.114.8 bn during
Q3FY11. Disbursement was strong during Q3FY11 with 78.6% YoY and 25.9%
growth.
At the end of Q3FY11, AUM stood at Rs.134.4 bn (up 39.3% YoY) with 30% exposure to auto/utility vehicles (M&M), 23% to tractors (M&M) and 33% to cars (including non M&M vehicles). Good monsoon, higher allocation to government programs
like NAREGA etc and enhancement in the minimum support prices (MSP) of various
crops resulted in improved cash flows to rural India and helped the M&M Financial
Services which has a strong presence (~80% branches) in rural areas,
In-line with the industry trend, share of cars (including non M&M vehicles) in the
lender's total AUM has increased from 28% at the end of Q3FY10 to 33% at the
end of Q3FY11. Auto/Utility Vehicles (M&M) financed as a % of total AUM stood at
30% at the end of Q3FY10, lower than 35% at the end of Q3FY10.
Strong core earning growth; higher provisions on account of standard asset provisioning dampened the bottom-line
During Q3FY11, MMFSL reported strong NII growth at 31.5% YoY to Rs.3.39 bn. Its
net Income grew 24.2% YoY to Rs.1.16 bn in Q3FY11 despite an exceptional item
of Rs.2.85 bn provision to meet RBI's stipulation of 0.25% standard asset provisioning for NBFCs. If excluded net Income would have grown to Rs.1.44 bn (growth of
54.8% YoY)
MMFSL also witnessed sharp rise in interest expense (19.4% QoQ) during Q3FY11
on back of steep increase in CPs as well as bank borrowings. The share of CPs in
total funding rose from 1.0% in Q3FY10 to 9.3% in Q3FY11. Similarly, the share of
bank loans in total funding rose from 40.0% in Q3FY11 to 46.4% in Q3FY11.
MMFSL saw 20 bps sequential improvement in gross spreads during Q3FY11 mainly
driven by 100 bps hike in lending rates during Q3FY11 along with well managed
asset-liability profile (avg duration of assets is ~28 months and that of liabilities is
~30 months). Management had guided that incremental cost of deposits was
~9.5% although the average cost of funds was 8.6% for 9MFY11.
They had further guided that with increased income in the hands of its target customers thanks to higher government allocation to rural development programs as
well as higher MSP for various crops, it would be easy for the company to pass on
the hike on cost side.
Steady asset quality; improved cash flows in rural India has
helped in past couple of quarters
Asset quality for the quarter remained fairly stable - in absolute terms, gross NPAs
rose marginally by 5.3% QoQ, while it was down 11.1% YoY. Similarly, net NPA
declined 34.7% YoY during Q3FDY11, while it rose by only 10.5% QoQ.
In percentage terms, gross NPA improved to 5.6% of total assets at the end of
Q3FY11 as compared to 5.8% at the end of Q2FY11 and 8.7% at the end of
Q3FY10. Similarly, net NPA as a percentage of total assets also declined to 1.1% at
the end of Q3FY11 as against 2.3% at the end of Q3FY10 and 1.1% at the end of
Q2FY11.
Improvement in asset quality during last couple of quarters has come on the back of
improving cash flows in rural India with rising government allocation to rural employment generation/development programs as well as rise in MSP of various crops.
Provision coverage stood healthy at 81.6% at the end of Q3FY11, providing cushion
to the earnings in the future from some negative surprises on asset quality.
We are of the view that - improved operating scenario, revival in agriculture growth
and more govt's focus on inclusive growth to help arrest incremental slippages and
will also aid better recoveries. Going forward, we opine that MMFSL's asset quality
will continue to improve.
Valuation and recommendations
Revival in advances growth coupled with firm net margins augurs well for the company, and thus we are slightly tweaking our earning estimates for FY11E and FY12E.
We now expect net profit to come at Rs.4.41 bn and Rs.5.96 bn for FY11E and
FY12E, respectively which would translate into EPS of Rs.43.2 and Rs.58.4, respectively. Similarly, adjusted book value (ABV) is forecasted at Rs.234.4 and 277.7 for
FY11E and FY12E, respectively.
We are upgrading the stock to BUY from ACCUMULATE earlier with the revised TP
of Rs.883 (Rs.740 earlier) based on 3.0x its FY12 ABV.
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