Mahindra Finance ‐ Momentum sustaining; vals reasonable 􀂄 :: Prabhudas Lilladher,

Mahindra Finance ‐ Momentum sustaining; vals reasonable
􀂄 Growth going strong; FY14 could be another strong year: MMFS has been
reporting better-than-expected growth of ~35% YoY driven by all segments excl.
tractors as Mahindra continues to add new OEMs and aid in their rural sales
financing. We believe Congress despite tight fiscal situation will continue rural
spending next year as it will be the pre-election year and thus, volumes are
expected to remain strong in FY14 as well.
􀂄 Fixed rate book ‐ Margins to inch up: MMFS's margins have been inching down
as funding costs increased over last 4-6 quarters as MMFS did not pass on the
entire cost hike to consumers. With wholesale rates easing and a completely
fixed rate book, we believe margins for MMFS will bounce back over the next 3-
4 quarters.
􀂄 Operating leverage improving: MMFS's cost-to-assets have come off as opex
growth remains lower than B/S growth as against their earlier long-term
guidance of 3.5% stable cost/assets, MMFS is currently at ~3.2-3.3% cost/assets
and management has now guided for 3.0% stable cost/assets guidance,
indicating that operating leverage has aided in lowering opex/assets.
􀂄 Asset quality stable; CRISIL feedback suggests limited stress on securitized
pools: Credit costs have held up at relatively lower levels and management
guidance continues to remain sanguine but there is limited primary data to
corroborate management guidance. However, our feedback from CRISIL
(securitization team) suggests that asset quality performance of MMFS's tractor
pools have been satisfactory and there is no unusual build up in overdue
buckets.
􀂄 ROEs relatively high even after assuming a dilution: Sensitivity to Rs8bn
dilution indicates a post dilution ROE of ~20% which remains best in class and
valuations on diluted book at 1.9x FY14 book is undemanding in our view.

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