Mahindra & Mahindra Financial Services - GNPL’s Breach 7% Mark; Outlook Cautious; Result Update Q3FY15 :: Edelweiss, report

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Mahindra & Mahindra Financial Services’ (MMFS) Q3FY15 PAT at INR1.4bn (down 17% YoY) missed our estimates by a margin. This was primarily due to asset quality stress and GNPLs increasing by 80bps QoQ to 7.1%. In turn, provisions increased (up 50% YoY) and interest income reversal increased leading to lower NII (up <10 -="" 11="" 15="" 8="" activities="" activity="" also="" and="" asset="" at="" aum="" business="" by="" cautious="" check.="" constrained="" costs="" coupled="" credit="" cut="" despite="" disbursements="" down="" economic="" economy="" elevated="" environment.="" environment="" estimates="" etc.="" farm="" from="" full="" further="" fy15="" given="" ground="" growth="" h2="" have="" higher="" improvement="" in="" inadequate="" its="" keep="" largely="" led="" level="" like="" long-term="" lower="" management="" mining="" mmfs="" model="" moderation="" negligible="" not="" of="" on="" operating="" outputs="" p="" painted="" pat="" payment="" perspective="" picking="" picture="" premium="" prices="" projects="" q2fy15="" qoq="" reflected="" regards="" remaining="" road="" rural="" seasonally="" sentiment="" slippages="" sound="" spiked="" stable="" strong="" structurally="" support="" tepid="" the="" to="" tough="" under="" underpinned="" unsettled="" up="" valuations="" we="" weak="" while="" will="" with="" yoy.="" yoy="">

GNPLs spike; rural wage growth close to 10-years low

For MMFS, the past 4 quarters have been tumultuous in terms of asset quality. Stable Q2FY15 along with seasonally strong H2 indicated healthy asset quality expectations. However, GNPAs worth ~INR3.7bn piled up owing to weak operating environment (poor monsoons, inadequate support prices for farm grains, natural calamities). Rural demand weakness is likely to persist as rural wage growth has slowed to 10-years low and MSP hikes over last 3-4 crop cycles have been modest. We expect recovery to be still some time away which will keep credit costs elevated.

LINK
https://www.edelweiss.in/research/Mahindra-And-Mahindra-Financial-Services--GNPL%E2%80%99s-Breach-7-Mark;-Outlook-Cautious;-Result-Update-Q3FY15/28065.html