M&M Financial Services - Lower assignment yields put pressure on NIMs:: Emkay

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M&M Financial Services

Lower assignment yields put pressure on NIMs

BUY

CMP: Rs 781                                       Target Price: Rs 870

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n     MMFS’ Q4FY11 earnings at Rs1.6bn in line with street exp but lower than our est. NII at Rs4.0bn, up just 15.2% yoy as NIMs dip by 269bps, higher than our estimates

n     The sharper contraction in NIMs came from lower margins on assets sold during the quarter. Reimbursement of expenses from banks to compensate for lower yield

n     MMFS continues to improve on asset quality, gross and net NPAs down 23% qoq and 43% qoq respectively. Provision expenses are almost at a third of Q4FY10 numbers

n     Expect 29% CAGR in earnings over FY11-13E. Return ratios robust at 4% RoAs and 23% RoE. Valuations undemanding at 2.8x/2.3X FY12E/FY13E ABV. Maintain BUY  with TP of Rs870