Not out of the woods - MMFS ::HDFC Securities

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Not out of the woods
MMFS’ results were below estimates with a sharp
deterioration in asset quality. GNPAs increased 65%
(ninth consecutive quarter of 30%+ YoY increase).
Thus, pushing GNPA ratio (7.1%) to eighteen quarter
high. Collection efficiency was flat QoQ at ~92%.
AUM growth of 11% was at a twenty one quarter
low, despite witnessing a pick-up in disbursements.
MMFS continued to deepen its reach (added 30
branches) leading to a rise in the C-I ratio.
MMFS is well positioned to ride the growth wave
having all the key drivers in place (capital, branches
and man power). However, despite the stringent
efforts towards improving collection efficiency, asset
quality continues to deteriorate. With subdued MSP
& rural wage increases coupled with a dull monsoon,
management hinted at continued stress on cashflows
faced by the borrowers. Thus, we expect asset quality
to remain under pressure for near to medium term.
MMFS trades at premium valuations of 2.6x FY17E
ABV. Maintain NEUTRAL with a TP of Rs 296.
 With slower AUM growth and 25bps NIM compression,
NII (Rs 7.4bn) was 6% below estimates. With continued
branch expansion, opex cost went up 7% QoQ. On the
back of higher than estimated deterioration in asset
quality and change in NPA buckets, provisions jumped
50/46% YoY/QoQ to Rs 2.7bn (ann. ~3%). PAT declined
16/34% YoY/QoQ to Rs 1.4bn (36% below estimates).
 For nine consecutive quarters, increase in GNPA has
been +30% YoY. During the quarter, GNPA increased
65/17% YoY/QoQ to Rs 25bn (7.1% of loans; eighteen
quarter high). Further, management hinted at lower
repaying capabilities (1 to 1.5 installments in 3-months)
of borrowers. Collection efficiency was stable QoQ at
92%. With slower growth and continued pressure on
cashflows of borrowers, we have factored GNPA of
5.5% for FY16/17E.
 For the second consecutive quarter, disbursement
grew at a healthy pace of 16% QoQ (-8.4% YoY) to Rs
67bn. The disbursements growth was led by Tractors
(+23%), auto/UVs (+20%) and cars (11%). With
improving macros, expected decline in discounts, new
products (OEM), increasing market volumes & deeper
penetration, we expect disbursements to grow further.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010798