MMFS reported PAT of Rs3.34bn, ~higher than consensus post adjustment of one‐
off gains, driven by higher margins and lower credit costs. Growth momentum
continues to surprise (~35% growth) and though a moderation is expected,
management commentary was very positive. With rate cycle in it’s favour, we
expect MMFS to report strongest FY14 PPOP growth (~30%) and this, coupled with
reducing asset quality risk (low waiver chances + positive start to monsoon
outlook), would be key stock catalysts. We maintain ‘BUY’ with PT of Rs250
! Growth outcomes better than street expectations: The key Q4FY13 highlight
was the resilience in AUM growth (~35% YoY growth) driven by all segments
except for some slowdown seen in non-M&M cars evident from slowing OEM
sales. Despite the challenging macro, management highlighted growing
importance of MMFS in increasing rural penetration of most OEMs and this is
likely to continue to aid loan growth. We see limited risk to our ~22% growth
expectations for FY14.
! Stable asset quality; Positive outlook on margins: Asset quality trends have
been stable and with MHCVs forming <20 book="" cv="" management="" mmfs="" of="" p="" s="">does not see any risk to their CV book. Moreover, MMFS has prudently started
building a provisioning buffer (Rs350m) from the stake sale gains of their
insurance subsidiary. Margins held up better than expectations, with cost of
funds moderating QoQ and with a 100% fixed rate book, rate cycle is very likely
to have a positive impact on MMFS’s margins in FY14 (we expect ~30bps
improvement).
! High PPOP resilience in FY14; Maintain BUY: With a better-than-industry
outcome on growth and improving margins, we expect MMFS to report best-inclass
PPOP growth of ~30% in FY14 and should be a key stock catalyst. With the
possibility of a debt waiver receding (low fiscal flexibility) and positive forecasts
on monsoons, asset quality risks have reduced
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