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M&M Financial Services
Strong growth momentum to continue; we reiterate a Buy
M&M Financial Services (MMFS) is likely to see robust loan growth,
backed by strong rural demand due to rising disposable incomes in
rural/semi-urban areas. The asset quality is encouraging and we
estimate credit costs at 2.1-2.4% over FY11-14. Despite ~70-bp
contraction in NIM due to higher borrowing costs, we estimate 24%
CAGR in net profit, and healthy profitability with RoE of ~22% over
FY11-14. We reiterate a Buy rating on the stock.
Robust loan growth to continue due to rural demand. We expect
24% CAGR over FY11-14 and a rise in the rural-housing subsidiary’s
loan book to `15bn by FY15. This is based on good monsoons, high
food prices and the larger outlay on government schemes. In the past
year, MMFS saw robust loan growth (2QFY12 AUM growth of 40.7%
yoy) despite interest rates rising ~200bps. This was backed by strong rural
demand due to rising disposable incomes in rural/semi-urban regions.
Asset quality assurance encouraging; superior NIM at 11%+. MMFS
assets are robust, with net NPA of 1% and NPA coverage of 75% as of
30 Sep ’11. We expect credit costs at 2.1-2.4% over FY11-14 (1.3% in
FY11) due to strong rural cash flow. Despite a ~70-bp NIM contraction
in FY12 due to higher borrowing costs and loss of priority-sector loan
(10% of total on 30 Sep ’11), we estimate NIM at 11%+ over FY11-14.
Strong profitability to drive valuations. We estimate strong RoA and
RoE, at 3.5%+ and 22%+, respectively, in FY13/14. At current
valuations, the risk-reward equation favours MMFS. Higher profitability
and easing macro-economic concerns are likely to drive valuations.
Valuation. At our price target, the stock would trade at a PBV of 3x
FY12e and 2.5x FY13e. Risks: Slower-than-expected rural economic
growth could impact loan growth; increase in NPAs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M&M Financial Services
Strong growth momentum to continue; we reiterate a Buy
M&M Financial Services (MMFS) is likely to see robust loan growth,
backed by strong rural demand due to rising disposable incomes in
rural/semi-urban areas. The asset quality is encouraging and we
estimate credit costs at 2.1-2.4% over FY11-14. Despite ~70-bp
contraction in NIM due to higher borrowing costs, we estimate 24%
CAGR in net profit, and healthy profitability with RoE of ~22% over
FY11-14. We reiterate a Buy rating on the stock.
Robust loan growth to continue due to rural demand. We expect
24% CAGR over FY11-14 and a rise in the rural-housing subsidiary’s
loan book to `15bn by FY15. This is based on good monsoons, high
food prices and the larger outlay on government schemes. In the past
year, MMFS saw robust loan growth (2QFY12 AUM growth of 40.7%
yoy) despite interest rates rising ~200bps. This was backed by strong rural
demand due to rising disposable incomes in rural/semi-urban regions.
Asset quality assurance encouraging; superior NIM at 11%+. MMFS
assets are robust, with net NPA of 1% and NPA coverage of 75% as of
30 Sep ’11. We expect credit costs at 2.1-2.4% over FY11-14 (1.3% in
FY11) due to strong rural cash flow. Despite a ~70-bp NIM contraction
in FY12 due to higher borrowing costs and loss of priority-sector loan
(10% of total on 30 Sep ’11), we estimate NIM at 11%+ over FY11-14.
Strong profitability to drive valuations. We estimate strong RoA and
RoE, at 3.5%+ and 22%+, respectively, in FY13/14. At current
valuations, the risk-reward equation favours MMFS. Higher profitability
and easing macro-economic concerns are likely to drive valuations.
Valuation. At our price target, the stock would trade at a PBV of 3x
FY12e and 2.5x FY13e. Risks: Slower-than-expected rural economic
growth could impact loan growth; increase in NPAs.
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