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Mahindra & Mahindra Financial Services
(MMFS.BO; Rs664.55; 3M)
Mahindra & Mahindra Financial Services presented today at our India
conference. Key takeaways are as below:
Loan Growth Moderation Ahead - While MMFSL's loan growth has been strong
(49% YoY), some moderation is expected ahead, primarily as the high base
effect sets in. Moreover, the rising interest rate environment should temper
demand. However, management believes that the underlying economy, and
particularly the rural sector, remains healthy, providing a cushion to the overall
moderation. While there could be some slowdown in the commercial vehicles
industry, where growth is expected to decline to 10-15%, MMFSL's key
advantage is its de-risked loan-book diversification. Historically, there have been
multiple growth drivers and currently the growth is being fueled by the car and
utility vehicles segments, which should sustain growth of around 30%yoy.
Some Margin Pressure - While MMFSL has a well-matched asset and liability
book, there are possible margin pressures ahead. These could be led by a faster
liability repricing in the coming quarters, with a higher increase in cost of funds.
This could cause 20-25bps pressure on margins, especially in 1QFY12.
However, management is confident of margin recovery in the latter part of the
year, which should help to pull up margins in FY12 overall.
Asset Quality Stable - MMFSL's asset quality has been improving and
management is confident that it should remain firm as there are no signs of
pressures on the ground. They believe that the income levels across borrowers,
particularly in rural areas, which is its key target segment, have increased
commensurately and that service ability should not be a concern. Additionally, the
majority of the loans are fixed-rate loans, which is a benefit to borrowers in a
rising interest rate environment, as is prevalent today.
Return Ratios and Profitability To Remain Healthy - Management believes
that the overall return and profitability profile of the company should remain
stable at existing levels. There are possible upsides due to expected cost
efficiencies, along with stable credit costs, which should remain at relatively
modest levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Mahindra & Mahindra Financial Services
(MMFS.BO; Rs664.55; 3M)
Mahindra & Mahindra Financial Services presented today at our India
conference. Key takeaways are as below:
Loan Growth Moderation Ahead - While MMFSL's loan growth has been strong
(49% YoY), some moderation is expected ahead, primarily as the high base
effect sets in. Moreover, the rising interest rate environment should temper
demand. However, management believes that the underlying economy, and
particularly the rural sector, remains healthy, providing a cushion to the overall
moderation. While there could be some slowdown in the commercial vehicles
industry, where growth is expected to decline to 10-15%, MMFSL's key
advantage is its de-risked loan-book diversification. Historically, there have been
multiple growth drivers and currently the growth is being fueled by the car and
utility vehicles segments, which should sustain growth of around 30%yoy.
Some Margin Pressure - While MMFSL has a well-matched asset and liability
book, there are possible margin pressures ahead. These could be led by a faster
liability repricing in the coming quarters, with a higher increase in cost of funds.
This could cause 20-25bps pressure on margins, especially in 1QFY12.
However, management is confident of margin recovery in the latter part of the
year, which should help to pull up margins in FY12 overall.
Asset Quality Stable - MMFSL's asset quality has been improving and
management is confident that it should remain firm as there are no signs of
pressures on the ground. They believe that the income levels across borrowers,
particularly in rural areas, which is its key target segment, have increased
commensurately and that service ability should not be a concern. Additionally, the
majority of the loans are fixed-rate loans, which is a benefit to borrowers in a
rising interest rate environment, as is prevalent today.
Return Ratios and Profitability To Remain Healthy - Management believes
that the overall return and profitability profile of the company should remain
stable at existing levels. There are possible upsides due to expected cost
efficiencies, along with stable credit costs, which should remain at relatively
modest levels.
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